Why uranium prices aren’t soaring

The Financial Post has a story about why uranium prices have failed to reach the highs of 2007, despite experts saying the outlook for the nuclear metal is brighter than other commodities.

Big hedge funds and other sophisticated financial players were responsible for the spot price of uranium increasing by 800% between 2004 and 2007, but the financial meltdown last year has forced many of them sell their contracts.

Many utilities bought up large after the forced sales and are well stocked at the moment.

As a result, without those funds buying urnanium, the price has remained low.

Meanwhile, the article also says the increase in cooper and nickle prices is due to stockpiling and speculative investment from China, where relaxed lending standards from its banks are seeing investors take advantage to get a slice of the action:

When spot uranium prices soared to nearly US$140 a pound in 2007, critics blamed hedge funds and other financial speculators for pushing prices to absurd levels unmatched by any other commodity.

Whatever happened to those days?

Commodity prices have been on a tear since March, largely due to buying by speculators playing an economic recovery. Yet uranium – the former ground zero for speculation – is not joining in, even though many industry experts say that the outlook for the nuclear metal is better than most other commodities. READ HERE.

Speculators accounted for 71% of oil contracts of the NYMEX

Reuters have obtained statistics from the Commodity Futures Trading Commission (CFTC) which shows that speculators accounted for 71% of the benchmark oil contracts on the New York Mercantile Exchange (NYMEX), the world’s largest for energy trading, as of April 2008.

The story also looks at what impact the proposed regulation by CFTC chairman Gary Gensler could have on big players like Goldman Sachs, which has made a killing from speculating on oil trading:

Fewer than one out of every 10 barrels of oil traded on U.S. futures exchanges gets delivered to consumers, an equation that may change under sweeping new restrictions being weighed by the government’s top commodities regulator.

With plans to curb speculation in energy trading, U.S. Commodity Futures Trading Commission chairman Gary Gensler could push banks and funds, which now buy and sell the lion’s share of oil and gas contracts, to seek opportunities elsewhere, industry watchers say. READ HERE

Bernstein: CFTC’s plans won’t stop wild speculation

Richard Bernstein, the former Chief Investment Strategist and Head of the Investment Strategy Group at Merrill Lynch and CEO of Richard Bernstein Capital Management, believes plans by the Commodity Futures Trading Commission to regulate speculation on the exchange won’t work because it will merely push speculators to the non-regulated over-the-counter markets.

Bernstein also argues that it was hedge funds, not “textbook” speculators, and excessive lending from banks helped fuel the speculative bubble in the oil market in 2007/08.

I loudly applaud the CFTC’s efforts to tighten commodity trading regulations, but I think that Washington still doesn’t fully understand the root cause of today’s speculative commodity and financial markets. 

It’s not about position limits.  It’s about credit flowing to financial speculation instead of toward productive use. READ HERE

Commodify Me! would also like to point out that there is an article in Time Magazine that is closely related to this: Why There Should Be More Oil Speculation, Not Less.