Why PGMs Have Failed To Follow Gold’s Advance

April 28, 2010 | By | Reply More

Gold has shown the way forward this week while PGMs (platinum group metals) and silver have broken the rules by declining.

The failure of PGMs to follow gold’s advance seems to us to be the fear factor of gold being considered as the ultimate safe haven refuge whereas PGMs do not share the same recognition. Having made that point it does not explain why silver, second only to gold as a hedge, has also declined.

Of course there are many other perfectly viable reasons for the advance of gold but we are of the school that believes that at any given time there is usually only one overriding factor that directs a market despite however many other contradictory signals, be they technical or fundamental, are blinding us at the same time.

Recognizing the driver is the difficult part.

This may be the reason why the link that has been so reliable in the past in moving gold, silver and PGMs in the same direction has been broken so far this week.

Spot gold is up from $1150 to hit $1170 while platinum is down from $1740 on Monday morning to $1700, Palladium down from $564 to $539 while silver has languished as low as $17.85 from a high of near $18.50.

We anticipate an exciting remainder of the week, expecting PGMs and silver to make up lost ground and gold to continue to advance although no doubt their will be a Friday hiccup as profits are taken off the table.

Regular followers will know that Uranium is of interest to us and that in the past we have suggested Market Vectors Nuclear ETF (NLR: NYSE) as a good entry into the uranium and nuclear energy sector.

There are considerable reports that insufficient Uranium ore is being mined to satisfy the expected increase in demand as the new nuclear power plants come on stream over the next few years. Couple this to the fact that the USSR has nearly run out of recycled nuclear warheads to top up supplies of the fuel and that there are mines that are losing money on every ton of ore dug out of the ground and processed at current prices.

The scenario for the longer term investor seems to have no significant downside whatever the outcome of the world’s economies. Increase in non-carbon based and cost effective energy production can only be practically met by nuclear means and to date no other alternative source of sufficient energy is on the horizon.

Leap call options on NLR is our preferred play and is certainly worth a look as the price of Uranium is still well off its two year highs, sitting at $41.75 this week.

Two or so weeks ago we suggested that buying the British Petroleum Jan 11 $70 leap call option could result in a tidy profit and was an inexpensive and leveraged way to get in on the anticipated surge in oil prices. Despite the destruction of their oil platform in the Gulf of Mexico and the tragic loss of life we still think that BP is a buy.

Yes, we have read that it will cost a million dollars a day for the next three months to cap the leak but BP is a well managed substantial player in the oil business and with this set back the shares look cheap. If you are already a holder best to grit your teeth and hang on in there. Others may consider taking advantage of the current price to invest in a first class well run major oil sector business.

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Category: Platinum Group Metals

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