Platinum & Palladium Have Investment Potential

April 11, 2011 | By | Reply More

Over a considerable time we have advised our followers to steer clear of Platinum Group Metals (PGMs) principally on the grounds that the best of the action in precious metals has been with gold and silver. It made little sense to us to think of putting both our long term or speculative cash into PGMs when the profit potential in gold and silver was, and probably still is, so much greater.

However we now believe a rethink on PGMs is a worthwhile exercise. Both platinum and palladium are now consolidating a long term profitable investment potential, with, as usual, the entry being one of the key factors in the equation.

On Balance Gold & Silver Have More Upside To Come

While we still veer strongly towards gold having much more upside to come, together with our current target for silver being $46 an ounce, there is, we believe, a growing but, as yet, still small danger of a collapse of significant proportions that might occur in both metals.

There have been some spectacular gains made in gold, and we ourselves have made over 300% profit in silver as we have invested our spare cash at intervals during its march upwards. On top of this our option plays, aka gambles, have produced spectacular results. With returns like this in mind, and recent examples of bursting bubbles, it is always possible that market sentiment, that great unknown, may turn against our favourite metals.

The Gold & Silver Secctor is a Small Market

The fear factor, the power of the hedge funds, unexpected flights to liquidity resulting from acts of nature, or even the unlikely event of the Fed reversing its money printing policy, raising rates and taking rigorous measures to restore the value of the dollar and beat back inflation can send the bull run into retreat.

Always bear in mind that both gold, and even more so silver, and their spin off producers and ETFs are very small  markets in relation to almost every other traded market sector. The consequences are that even a small ripple that hardly effects other sectors can cause the precious metal sector to rock violently.

More Caution Advised In Precious Metal Sector

The precious metal sector is our stamping ground but we now believe that a more cautious approach is warranted. From a speculative point of view we are finding it hard to justify any option plays in either gold or silver ETFs or miners at this moment in time.

Our expectation is that both metals will stay in a price channel for a period before breaking out to the upside but until we see that happen clearly, we are content to stay in, but not add, to our positions.

Should the result be a sharp reversal then we will have to revise our opinions and consider cashing in some of our holdings for a reduced profit. It would come as no surprise that many other investors may take the same decision, although completely unloading could result in a very big mistake. Over a long term such a reversal should open up another “golden” scenario to make big profits so would not be altogether unwelcome.

Platinum & Palladium ETFs Backed By Hard Assets

This brings us back to platinum and palladium. Both have ETFs that hold the physical metal in the same way iShares Silver (SLV:NYSE) or SPDR Gold Trust (GLD:NYSE)

This we like as it enables a straightforward trading environment together with the security of knowing the ETF is backed by the hard asset of the metal lying in a secure vault.

South Africa & Zimbabwe Changing the Mining Scene

South Africa is the worlds largest producer of platinum and is also a country that is not the most politically stable from a western point of view. Apart from more immediate problems involving increasingly militant mining unions, power sources yet to be fully modernised and reliable, the biggest cloud on the horizon is the growing “africanisation” of the mining industry.

Historical experience tells us that such a process inevitably results in a lower standard of management and slowing of inward bound investment. Not only will production fall but costs will rise. The impact of both will send both metals much higher.

A more advanced version of the same situation is happening in Zimbabwe, another major producer and is likely to spur South Africa on with its own plans.

At the same time there are estimates that palladium demand will outstrip supply this year with platinum demand following suit within two years.

Timing the Entry Into Platinum & Palladium ETFs

Of course much will depend on the worldwide economic situation with automotive manufacturing being the principle factor as both metals are essential, at this moment in time at least, to the production of catalytic exhaust systems.

We want to see the price of both metals pull back a little more and consult the charts for an opportune opening. Both ETFS Physical Platinum ETF (PPLT:NYSE) and  ETFS Physical Palladium (PALL:NYSE) are our preferred investment vehicles for these metals but sadly no option trading on either is yet available.

Our intention is to put circa 30% of our precious metal sector investment money  split equally between the two ETFs when we think the entry time is ripe and will expect to hold to  until 2013 for our profit return of at least 100 % is realised.

Of course much will change between now and then and particularly the precious metal sector will come under even closer scrutiny as fiat currencies continue to lose value and the move to revert to a gold standard ebbs and flows amongst   countries outside the Euro/US axis so our platinum and palladium intentions are not set in stone, but  neither are our gold and silver.

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Category: Platinum Group Metals

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