A little prediction I made three weeks ago has come true with a vengeance…

In the latest issue of my S&A Resource Report advisory, I warned readers that gold and silver stocks were vulnerable to a sharp short-term correction.

Gold and silver prices had soared… and many gold and silver stocks had shot up 50%-100% in just a few months. I even made the unpopular choice to sell one of our biggest winners for a 345%-plus gain.

Now, just three weeks later, gold and silver are trading at their lowest levels in two months. Many gold and silver stocks have shed 15%-20% of their value.

[ad#Google Adsense]I can’t tell you the right time to pile back into gold and silver stocks… but I can say I wouldn’t be surprised to see these markets struggle in the next year. After all, gold just registered its 10th consecutive year of higher prices. This is a once-in-eight-generations move. And while I’m a long-term bull on gold, the metal is well within its rights to take a breather that will frustrate latecomers.

For folks looking to make huge mining stock gains in 2011, I have a different idea for you…

Buy uranium. Buy uranium stocks.

You see, while gold has run relentlessly higher for 10 years… and while many investors are gaga over gold and silver stocks right now, uranium – the chief fuel for nuclear reactors – has spent the last three years in the dumps. Uranium stocks are still detested by most investors, if they’ve even heard of them at all. Unknown or hated assets always have the greatest potential to climb hundreds of percent.

You can’t say gold stocks are hated right now. Investors always chase past performance. Run a screen on the top-performing mutual funds of the past five or 10 years. You’ll find gold stock funds dominate the lists.

You won’t find a uranium fund on that list, however. Unlike gold, which rose steadily for 10 years, uranium was destroyed in 2007. As you can see in the chart below, it’s only up a bit from its five-year lows…

The boom in uranium from 2005 to 2007 was the result of crazy speculation. Today, real demand for uranium as fuel is driving the price up.

China is desperate to substitute its polluting coal power plants with cleaner-burning nuclear plants. It’s constructing 25 new nuclear reactors right now. India’s nuclear reactors operate at 50% capacity because the international community restricted its access to uranium. Demand for uranium should double by 2030…

And new supply is not coming online fast enough.

[ad#ChinaBlankCheck]That’s why companies are paying well above the spot price for long-term contracts. China’s Guangdong Power recently agreed to buy 10 years of uranium supply from French producer Areva Group for $75 per pound. That’s a 7% premium to the spot price today… And the price of uranium has climbed from $40 to $70 in the last six months.

There’s still a lot of room for uranium prices to rise. Unlike most fuels, uranium doesn’t represent a large slice of the operating costs to a nuclear power plant. The cost of uranium is just 4% of the cost to generate electricity. That means uranium prices could go a lot higher without a material impact on the cost of producing power.

Just to be clear… I think gold and silver investors could still make money in the coming year if they focus strictly on buying the best companies at the right prices. But remember… gold and silver could move sideways or a bit lower this year. After all, they’ve skyrocketed in the past few years. If you’re looking for something less fashionable, and more likely to rise, consider uranium and uranium stocks.

Good investing,

— Matt Badiali

[ad#jack p.s.]

Source:  Daily Wealth