What happened

Uranium stocks were back in action Monday after an unsettling last week, with most stocks surging on Sept. 27 before settling a bit lower by market close. Denison Mines (DNN -1.75%) and Ur-Energy (URG) each popped during the day and closed up 8.3% and 4.3%, respectively. Uranium Royalty (UROY 0.77%) shot up 11.6% by market close. 

Investors saw an opportunity in the red-hot uranium stocks after last week's decline in prices, especially with natural gas prices soaring.

So what

After a heady rally that saw uranium prices surge almost 60% in less than a month's time, prices took a breather last week and drove most uranium stocks lower.

The Sprott Physical Uranium Trust Fund (SRUU.F 0.94%) seems to have taken a breather from its aggressive uranium buys -- it last announced a purchase of 1.45 million pounds on Sept. 17. This has investors worried, as Sprott's buying was the biggest trigger for uranium prices that were languishing for years.

Mid-September, Uranium Royalty added fuel to the fire by announcing contracts to purchase uranium. As a uranium royalty company, Uranium Royalty can take advantage of higher uranium prices without bearing any risks or costs related to uranium mining: It simply buys uranium from miners and then sells to pocket the difference.

Rising stock price charts on a smartphone with a stock price display board in the background.

Image source: Getty Images.

Sprott may possibly have paused purchases to avoid regulatory attention, considering that it explicitly told The Financial Times last week that it doesn't intend to "corner" the uranium market. That further dampened investor sentiment in uranium stocks.

Over the weekend, though, the energy crisis in Europe worsened -- so much so that natural gas prices shot up to multi-year highs on Monday as supplies continued to dwindle. With China already grappling with a power supply crunch, industry experts believe the situation will force global energy think tanks to renew interest in nuclear power plants to supplement power supply.

On Sept. 24, Tesla's Elon Musk also spoke in favor of nuclear energy at the Italian Tech Week, suggesting the world should build more nuclear energy and at least not shut down the existing nuclear power plants.

The developments spurred buying in uranium stocks today, as uranium is the key fuel used to power nuclear reactors. Uranium Royalty and Ur-Energy are the smallest uranium stocks in terms of market capitalization, and small-cap stocks can typically see frenzied investor activity on either side. Investor interest in Denison Mines, on the other hand, was strong. The stock also got a price upgrade from Canaccord Genuity last week, to three Canadian dollars per share from CA$2.50 a share.

Now what

Investors in uranium stocks should be prepared to stomach volatility, but I still believe the rally in uranium prices is here to stay, at least in the near term. The thing is, Sprott has already outlined plans to offer more units that should mean it'll need to buy more uranium. It could take it slowly from here, but that doesn't mean the fund will stop business and not buy uranium anymore.

Long-term investors, though, should pay more attention to developments in the power sector, as the uranium industry will eventually require support from the nuclear energy industry to survive and thrive.