Why Uranium Is a Precious Metal

10/05/2011 10:30 am EST

Focus: GLOBAL

The Western world's skittishness and skepticism when it comes to nuclear energy won't stand in the way of production elsewhere in the world. It will be full steam ahead in China, India, and other developing nations, says Doug Casey in this interview with The Energy Report.

In fact, "I'd say uranium is a great place to be for at least the next generation," Casey tells us. With ever-advancing technology enabling economic recovery in places where it previously wasn't possible, he's also optimistic about natural gas and oil.

The Energy Report: At the Casey Research/Sprott Inc. "When Money Dies" summit in Phoenix, you're on tap for a presentation entitled "The Greater Depression Is Now." Your colleague, Marin Katusa, is on the roster too, talking about "Making Money in Energy."

Marin recently told us there's a buying opportunity for uranium companies. Given Fukushima's repercussions in terms of the nuclear energy industry, are you bullish on uranium?

Doug Casey: Absolutely. It's unquestionably the safest, cheapest, and cleanest form of mass power generation.

That's not to say that there aren't problems, as the Fukushima incident made clear. As much of a disaster as that was—a combination of earthquake, tsunami, and radiation leakage—so far it's just been a big industrial disaster.

I daresay that if government hadn't been so involved in nuclear power these last 50 or 60 years, the technology would have been much further along. Nuclear power would be much safer, cheaper, and cleaner than it is today.

We might, for instance, be using thorium, which appears to be better than uranium in many ways. We would almost certainly have much smaller, cheaper, and more robust reactors.

So, yes, I'm a huge uranium bull. If you want mass power, you need nuclear power. And today that means uranium. I'd say uranium is a great place to be for at least the next generation.

The Energy Report: But considering the fact that governments remain involved and people are even more squeamish about nuclear power post-Fukushima, won't we see a stall in nuclear power and development?

Doug Casey: That's possible. But, the hysteria is mainly going to affect the Western world. China and India recognize they have no alternative to nuclear power.

As you know, the growth is in China, India and other emerging economies; it's where the most of the world's people live. The Western world is small by comparison, and getting smaller. These other places will continue full steam ahead with nuclear.

The Energy Report: Porter Stansberry, whom you know well, recently told us to expect the US to become a net exporter of natural gas in the not-too-distant future. Do you see that as well?

Doug Casey: Quite likely. Let's talk about peak oil first, though.

I think that the Hubbert peak theory is accurate, and for good geological reasons—but understand that peak oil doesn't mean we're running out of oil. Rather, it means that we're running out of easily available, cheap light sweet oil. And we are.

However, technology is always improving, enabling economic recovery of oil and natural gas in places where it previously wasn't possible. Horizontal drilling and the fracking process have opened up gigantic reserves of gas, scores of trillion of cubic feet in some basins in the US.

So, yes the US could become a huge exporter of natural gas. It's entirely possible. It could happen in other regions of the world as well, but probably not with gas at its current prices.

The gas is available, but because it's very underpriced relative to other forms of energy, it probably won't be produced until the price doubles or even triples from where it is now. That would bring it more into historical alignment with oil prices, which I expect will themselves go higher as well.

The Energy Report: How is it that the oil prices have remained relatively high and gas is still so low? Given the differential of the two price points, why aren't we seeing a conversion from oil-dependent cars, for instance, to natural gas?

Doug Casey: Oil has much a greater density of energy than natural gas, and a much more convenient energy-based fuel, so of course we've all gravitated toward it. It's not really feasible for aircraft, for instance, to be able to run on natural gas, so they'll continue to use oil-based derivatives.

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In addition, gas is much harder to transport than oil. So it's tended to be a local market, whereas oil is international.

But since most all the easy, cheap oil's been found—mostly in the 1960s and 70s—and those old oilfields are going into decline, gas is probably the next thing.

Gas has some advantages as well. For one thing, it burns cleaner. Remember that these fuels, these petrochemicals, basically contain just hydrogen, oxygen and carbon.

As technology advances, we should be able to manipulate these very simple and well-understood molecules and put them into a form we want. We'll be able to do it ourselves in various ways as nanotechnology, for instance, develops further in the future. Then maybe we won't have to rely on nature doing it for us over billions of years.

The Energy Report: Despite criticism of the effects of government involvement—stifling nuclear energy advancement over the years, as you mentioned earlier, or printing money to paper over enormous amounts of debt, as you've pointed out in other interviews—you've indicated that improving technology is a countervailing trend that actually will increase the standard of living.

Doug Casey: Exactly. There are more scientists and engineers alive today than have lived in all previous history put together; that's a huge cause for optimism.

Technology is very likely to solve many, many problems—as long as the scientists and the free market are allowed to develop these things, and as long as there's capital available to manufacture the tools they need to do so.

The Energy Report: What are some things that investors can do to protect themselves?

Doug Casey: It's very hard to be an investor in today's world, because an investor is someone who allocates capital in a way to create new wealth. Inflation, taxation, and regulation make investing very problematic—and all three are becoming much more severe.

That said, it's late in the day but not too late to buy gold, silver and some other commodities. Productive assets of several types are good to own.

Of course, the easiest way to buy most productive assets is through the shares of publicly traded companies, but since the stock market is overvalued in my opinion, that's not the best option right now.

In addition to trying to build personal holdings of gold, and to a lesser degree silver, I think people should learn to be speculators. That's not to be confused with gamblers, who rely on random chance.

Speculators position themselves to take advantage of politically caused distortions in the marketplace, and we'll be seeing lots of those. In a true free market society, you'd see very few speculators because there'd be very few such distortions.

But compounding regulations, taxes and currency inflation are likely to keep markets very volatile. Good speculators will position themselves to both capitalize on inflating bubbles, and identify bubbles that already have been blown to their maximum and are about to pop.

Increasing government involvement in the economy is going to literally force people to become speculators.

The Energy Report: What bubbles might speculators look to exploit?

Doug Casey: As I mentioned earlier, most forms of real estate in the US are problematic, because the US bubble hasn't completely deflated yet, and real-estate bubbles are just starting to deflate in places such as Australia and Canada.

Probably the world's biggest real estate bubble is in China. It's relatively hard to short real estate, of course. But shorting banks there might work well.

Bonds are another story. I'd say bonds are the short sale of the century. They're going to be destroyed. Bonds pose a triple threat to capital:

  • Interest rates are artificially low, and as interest rates rise—which they must—bonds will fall.

  • The currencies that bonds are denominated in, let's say dollars, will depreciate radically.

  • The credit risk presented by many issuers—certainly including governments—is very high.

On the long side, mining stocks are very cheap relative to the price of gold right now. There's an excellent chance of a bubble being ignited in gold mining stocks, especially the small ones; in fact, I'd put my finger on that as likely being the easiest way to make a killing—although there's plenty of risk.

The Energy Report: How about technology? Do you see a bubble forming there?

Doug Casey: You have a point, but I'm not sure you can talk about technology stocks as a whole—technology is too variegated, too vast a field.

I must say, however, that I've always been a huge fan of nanotech—that is an area that will change the nature of life itself. The market will see that, and so it's a definite candidate for a mania. With gold stocks, however, you can jump into a discrete universe.

The Energy Report: Any others?

Doug Casey: Just talking about the things that seem most obvious to me, like gold...well, oil isn't cheap, but a lot of oil stocks are.

Natural gas, as we said, impresses me as being cheap relative to other commodities. A favorite of mine is cattle—the downside is de minimus and the upside is huge.

Read more from The Energy Report here...

Related Reading:

Is the US the Next Japan?
5 Contrarian Investment Plays
2 Energy Plays that Proit on Falling Oil

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