Shares of uranium mining company Uranium Energy (NYSEMKT:UEC) jumped 11% as of 2:50 p.m. EDT Wednesday after The Wall Street Journal reported this morning on how "day traders are driving uranium prices higher."
The cost of yellowcake has risen 46% since early August, reported the Journal, hitting $47.10 per pound -- and according to data from TradingMarkets.com, it's up another 3.7% today.
Does a 3.7% rise in the price of a product justify an 11% rise in the price of a stock that produces that product, though?
I'm not so sure it does. Fourteen years ago, uranium hit an all-time high price of $137 a pound, roughly triple today's prices. But at today's price of $48.85 per pound, uranium still needs to rise another 23% before it even reaches the $60-a-pound level at which experts at MiningReview.com believe mining uranium will be profitable enough to justify increasing production.
And here's the thing: There's no guarantee those prices will go up -- at least not in anything like a straight line. WSJ quotes traders worrying about "stop-and-start buying" by Sprott Asset Management that "has led to wild price swings" in uranium "with little or no justification based on fundamentals." And French nuclear-fuel company UG USA vice president Hyder Ramatala sees such "intense volatility" becoming "the norm" in uranium prices, such that price spikes such as we're seeing today at Uranium Energy can just as quickly turn into price declines when uranium buying wanes.
That might be good news for traders jumping into and out of uranium stocks as they trade based on momentum. But for long-term investors, it means you can't depend on price indications to have any bearing on when Uranium Energy -- which has never earned a profit -- might finally earn one.