PGMs Notch Up More Solid Gains

February 25, 2008 | By | Reply More

By the end of the week gold, silver and PGMs had notched up more solid gains. The question is, how much longer can this run last before a significant correction takes place?

This Monday morning saw PGMs off their tops in Asian markets as profits were taken off the table but gold maintained its price. As far as the yellow metal is concerned could it be entering into a period of consolidation before continuing its upward march to $1000 an ounce?

Certainly with a high of $950 attained during the week this looks like a good bet.

Looking at PGMs the picture is somewhat murkier. In the first place just how much of the South African power, labor, political and safety problems been factored into the surge in price?

Will the industrial demand turn significantly downwards when, and of course if, the US economic woes drive the rest of the world into a recessionary cycle?

Although there is currently a serious imbalance between demand and production it should be remembered that platinum, rhodium and palladium have their main industrial use as catalysts and that means they remain unaffected by any chemical or manufacturing process and can be effectively recycled ad infinitum.

There are signs that the demand for platinum in the jewelry trade is slackening along with gold, as the major buyers, particularly in India and the Far East, are becoming increasingly nervous about the high prices.

Whether this is due their perception that retail buyers will be scarce or that they consider the market is topping is anybodies guess but it should be a factor for investors to consider.

Finally such has been the dramatic and accelerating increase in their price that a sustained period of profit taking would not be such a surprise. Here a comparison with the performance of uranium in the last twelve months might shed some light.

From $40 a lb, yellow cake shot to a high of $135 a lb., influenced at that time by Comeco, the worlds largest uranium producer, having flooding problems at its Cigar Lake operation, which is unlikely to be resolved until 2011. South Africa’s miners have power problems expected to last until 2010 at the earliest.

A spate of announcements of planned nuclear energy plants from India, China, UK and others has occurred during this period leading to demand likely to outstrip supply until new mines begin to come on stream in about 3-4 years.

A similar scenario to the demand/supply scenario of PGMs. Note that there is no anticipated shortage of either uranium or PGMs waiting to be extracted, it is simply the sudden growth in price has made costly new exploration and mining development a viable starter.

Despite the growth in nuclear power facilities, and we are talking about over 250 planned new plants worldwide, the uranium price regressed to $75 a lb., briefly jumped to circa $90 a lb before sticking back at around $75 a lb again.

Anticipated increasing demand exceeding supply for eco friendly catalytic exhaust converters needing platinum, palladium and rhodium while production stays static bears a resemblance to uranium at the peak of its price.

Sustained profit taking played its part in taking yellow cake off investors and speculators radar.

If any of our readers have any observations on the situation, or even to ridicule our comparison, we would appreciate hearing from you and publishing your points of view.

In the meantime if you think that uranium will bounce back, then have a look at Market Vectors Nuclear Energy ETF. It will give you a spread across the sector.

Mining, plant and power generation make up the bulk of the portfolio. Please note that this is not a recommendation to buy and is only intended to give you food for thought.    

 

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