Uranium Exploration: A Good Hedge For U.S. Investors to Combat the Declining Dollar

Source:

The concept is fairly straight forward: Canadian uranium exploration could be a great way for American investors to hedge their portfolios against the declining greenback.

The concept is fairly straight forward: Canadian uranium exploration could be a great way for American investors to hedge their portfolios against the declining greenback.

Fact is, the U.S. dollar has been in a nose dive for almost eight years and as of now, there could still be more downside left. What many U.S. investors don’t realize is that while the greenback has been falling through the floor, the Canadian dollar has been gaining ground. In fact, during the third quarter of 2007, the Canadian dollar hit parity with the U.S. dollar, for the first time ever. Here’s where the currency strategy comes together. In a declining U.S. dollar environment, American’s who invest in foreign currencies (like the Canadian dollar) are able to see their money increase in value, even while the greenback falls. Case in point, investors who purchased the Canadian dollar at the start of 2004, have witnessed their wealth growth approximately 30%, while those who kept their money in the U.S. dollar experienced a (roughly) 12% decline, as measured by the U.S. dollar index. Really then, those who purchased the Canadian dollar have truly seen an approximate 42% gain in their money, when factoring in the gain in the Canadian dollar against the U.S. dollar and the decline of the U.S. dollar in terms of the U.S. dollar index.



Canadian Uranium Exploration: The Perfect Storm

With the decline of the U.S. dollar in mind, another issue is simultaneously facing investors: Rising prices of crude oil. And with elevated crude prices has come the resurgence of nuclear power. At the end of the day, the world’s thirst for energy has stimulated uranium exploration globally… and Canada is currently the largest supplier of uranium worldwide. Moreover, with substantial portions of the Theolon, Athabasaca and Hornby Bay basins in Canada potentially holding some of the world’s largest uranium deposits, companies actively exploring the areas could see windfall profits just around the corner.

At the end of the day, with the price of uranium up roughly 260% since January of 2005, supply issues threatening end users and elevated oil prices spurring social acceptance of nuclear power, are all resulting in the perfect storm for Canadian uranium exploration companies - exactly at the right time.

All Together

Keeping the staggering profit potential of Canadian uranium companies in mind, some may be wondering how the declining U.S. dollar ties into the larger equation. And, the answer is this: because most Canadian uranium exploration companies are listed on the Toronto Exchange, even when U.S. investors use a larger American brokerage house to purchase the stock of their northern neighbors, their money is typically first converted to Canadian dollars. Hence, investors who purchase Canadian exchange listed uranium stocks, could very well see blistering profits (if the company has a major uranium find), while also seeing an appreciation in real wealth, should the American dollar continue to decline.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe