Wall Street Strategies submits:

By David Urani

The World Cup has officially kicked off, and what a spectacle it’s going to be. The world could use this next month of competition to relax and take its mind off from some of the malarkey in the economic world over the past couple of months. In particular, Europe’s debt problems have taken center stage. Not only have the prospects of big government budget cuts around the world hurt outlooks for growth, but dwindling faith in the euro (and currencies in general for that matter) currently have investors running away from debt and equity and into safe, tangible assets.

And that has got me thinking; as it turns out, the World Cup host nation South Africa has one of the world’s most massive reserves of precious metals. It’s estimated that South Africa, ranked 25th in national GDP, holds 40% of the world’s gold reserves and a whopping 80% of the world’s platinum. Until around 2007, South Africa was the world’s largest exporter of gold, which accounts for 37% of its total export revenue, and it remains the largest exporter of platinum.

Euro Slump Shoots Gold Into the Top Corner

The global recession which, fingers crossed, recently ended has left behind a wake of problems, the biggest of which has been world governments crippled with huge debts. The problem hit danger levels when we all found out that Greece was likely to default without extreme preventative measures, including big budget cuts and a helping hand from some of its neighbors. Since then, questions have arisen over the state of the likes of Spain, Portugal, and Hungary among others. The problems have brought concern for the legitimacy of world currencies (after all, our own debts here in the US are nothing to sneeze at either). A flight to safety ensued and gold was possibly the biggest winner, recently reaching new highs above $1,250 an ounce.

Platinum’s Role

However, it’s platinum that really catches my eye. It still has the “personality” of gold in terms of a valued commodity and a hedge against currency, and it often moves in tandem with gold in connection with the above reasons. That being said, it also has industrial applications, particularly in the automotive market, which accounts for 70% of the commodity’s demand through catalytic converters. Consequentially, the latest market fears for global economic growth have weighed on platinum prices as gold has been somewhat unfazed.

It seems clear to us, however, that platinum’s drop has been overdone. Global economic fear has been too hysteric, and while not totally unwarranted, there is evidence of a brighter future. Positive reports include China’s exports increasing approximately 50% YOY in May, and ongoing improvement in the US manufacturing sector, according to a number of sources. And for platinum’s case in particular, auto sales in May exceeded expectations. As you can see in the chart below, platinum’s drop in May leaves it uncharacteristically undervalued compared to gold.

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Wealth Daily submits:

By Luke Burgess

It’s one of the most exotic metals in the world. 100 times rarer than gold … 150 times more expensive than silver. In fact it’s the most expensive of all precious metals. Yet no matter its rarity or cost, this metal is absolutely vital to the rapidly recovering automobile industry. The metal I’m talking about is rhodium.

The World Rhodium Market

Rhodium — along with platinum, palladium, ruthenium, iridium, and osmium — is part of a group of elements referred to as the platinum group metals (PGMs) or platinum group elements (PGEs). Platinum group metals have similar physical and chemical properties, but rhodium is the rarest.

Some of rhodium’s principal applications are as a finish for jewelry, mirrors, optical instruments, in electrical connections, and in aircraft turbine engines. But the predominant use of rhodium is in catalytic converters for automobiles, for which — especially in diesel engines — the metal has no substitute. As much as 80%-90% of annual rhodium supplies go into the production of automotive catalytic converters, which convert harmful gases from auto exhaust into less harmful substances.

Rhodium is exceedingly rare. And there are no pure rhodium mines in existence; rhodium is produced entirely as a byproduct of platinum and/or nickel mining. This means global rhodium supplies can not respond to changes in demand. So if the supply of rhodium is short, prices will rise drastically — and fall just as fast if demand eases off.

There are less than ten significant rhodium producing mines in the world, most of which are located in South Africa, which supplies over 80% of the world’s demand for rhodium. But recent power shortages in South Africa have forced mining companies to decrease — and sometimes even completely halt — rhodium production, with no clear resolution to the crisis in the foreseeable future. This has caused sharp deficits in the supply/demand dynamics of the rhodium market in recent years.

Annual rhodium production is already extremely limited. Only about 25 tons of rhodium are mined each year. Compare that to the 2,350 tonnes of gold mined in 2009, or the 220 tons of platinum mined each year …

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Trace Mayer submits:

Platinum has become an increasingly attractive asset for my portfolio. Despite the increased volatility I think this noble metal still presents an excellent opportunity to deploy capital into. The initial buy platinum recommendation was in July 2009 around $1,118 and was reiterated in January 2010 around $1,618.

As general economic conditions have the appearance of recovery, elections are coming up after all, the demand for both silver and platinum will likely increase. Governmental purchases for the green economy will put further strain on the physical market.

Gold, silver and platinum, unlike little colored coupons, cannot be produced by a bald monkey pushing buttons on a computer that add digits to a database on some server. Additionally, almost all the monetary and mind calming reasons an investor would desire to hold gold also apply to silver and platinum.

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ETF Database submits:

As debt concerns continue to plague the euro zone, many investors are beginning to temper their expectations for global growth in 2010. As the wave of uncertainty washes over markets, investors have been flocking to safe havens, sending gold prices to all-time highs. Other precious metals haven’t been quite so fortunate; an increased possibility of a recession in the euro zone, weak car sales, tame inflation figures, and a stronger dollar formed a perfect storm over palladium in recent sessions, sending prices of the rare platinum group metal plummeting by more than 15% over the last week.

On Wednesday, the ETF Securities Physical Platinum Shares Fund (PPLT) fell by 4.1% while the physically-backed Palladium Shares (PALL) sunk close to 7.6% on the day. Some are blaming the German plan to ban short-selling as a main catalyst for the sharp decline in precious metals as investors looked to sell holdings in metals in order to ratchet down their level of risk ahead of the short-selling bans on equities and debt. “Investors are just throwing in the towel and selling commodities across the globe,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a lot of fear about owning riskier assets.”

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Hard Assets Investor submits:

By Brad Zigler

Real-time Monetary Inflation (last 12 months): – 1.4%

Look below. THAT’s a nice chart. Being long palladium—or its security proxy, the ETFS Physical Palladium Shares (PALL)—has been a good, a very good, trade this year.

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With the introduction of new exchange traded funds (ETFs) for platinum and palladium in the U.S. at the start of this year, and a similar introduction in Europe more recently, a lot of attention has been turning to the Platinum Group Metal end of the precious metals complex. [PGMs: Platinum, palladium, ruthenium, rhodium, osmium and iridium.]

The large uptake in investor demand for the new ETFs took many by surprise, for what have been traditionally more industrious precious metals. While gold took many of the headlines as it broke all time highs during the year, platinum and palladium both set their own records. They were in fact often seen outperforming the yellow metal. This increased appetite for the metals as investment assets, and their strong performance over the past year or so now leads many to ask where they stand on the physical supply and demand side, and what potential is there for further price appreciation for the second half of 2010?

To assess both of these factors however, one first has to note some of the fundamental relationships these metals have on both the demand and supply side. The auto industry for example, represents the largest consumer for both platinum and palladium, accounting for almost half of the entire demand during 2009. Both metals are used primarily in auto catalysts, with palladium dominant in gasoline engines and platinum primarily used in diesel engines. Regionally, the majority of diesel driven cars are sold in Europe, while most gasoline driven cars are sold in China and other emerging economies.

In addition to auto catalyst demand, platinum sees a significant demand coming from the jewelry sector, and following Chinese platinum jewelry demand more than doubling in 2009, is now just as fundamental and important to platinum prices as the traditional auto industry demand. A new and upcoming factor on the demand side for both of the metals however, are the new ETFs created by the fund manager ETF Securities, which although the holdings represent only around 5% of estimated global demand this year, the amount of platinum and palladium that was bought by the two ETFs every trading day actually exceeded global mining production for the two metals.

The less established European ETFs have also seen a similar surge in demand come about for platinum and palladium. They now jointly raise the possibility that, at some stage, investor demand will in fact outstrip the physical. This would lead to a divergence away from the fundamental factors as is often the case in other, highly liquid commodities. On the supply side, South Africa represents the world’s largest individual producer of platinum, currently at around 80% of all global production. Russia is the world’s largest producer of palladium however, accounting for more than 50% of global production. South Africa comes in second for palladium production.

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Jeez, could the gold and silver markets be manipulated too?

* * *

By Whitney McFerron
Bloomberg News
Thursday, April 29, 2010

http://www.bloomberg.com/apps/news?pid=20601103&sid=atVcqHBUSuOo

CHICAGO — Moore Capital Management LP agreed to pay $25 million to settle charges that a former portfolio manager attempted to manipulate platinum and palladium futures during a surge in prices two years ago, U.S. regulators said.

A portfolio manager, who wasn’t identified, used buy orders in the closing moments of trading on the New York Mercantile Exchange to boost settlement prices from November 2007 through May 2008, the Commodity Futures Trading Commission said today in an e-mailed statement. The orders “frequently accounted for a significant portion of the volume” in the two thinly traded markets, the agency said.

Platinum futures rose 39 percent from Nov. 1, 2007, to May 30, 2008, touching a record $2,308.80 an ounce on March 4, and palladium jumped 17 percent, touching a six-year high of $600 an ounce, also on March 4. Both palladium platinum are used in jewelry and pollution-control components for cars.

New York-based Moore, which manages about $15 billion, said in a separate statement that the portfolio manager left the company in the fall of 2008. None of Moore’s principals nor its current management were involved in any improper trading, and none were accused of any wrongdoing, the company said.

The manager sought to influence the exchange’s volume-weighted settlement price with buy orders for 20 to 100 contracts, according to the agency. A platinum contract is 50 ounces, and a palladium contract is 100 ounces.

* * *

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By Sol Palha, Tactical Investor

Chinese Proverb

In an article titled the Palladium; the stealth bull market, we explored the Palladium bull market and laid down the criteria necessary for Palladium to trade to the 800 ranges. We are going to post some of the excerpts of this article below before we take a look at Still water mining (SWC).

It broke through the 1st resistance point at 375 with relative ease and is now attempting to break past an even stronger zone of resistance. The $465-$475 ranges make up a zone of very strong resistance, and most likely it will take several attempts before palladium manages to break past this zone; once it does though it should be clear sailing to the 550-600 ranges.

The $465-$475 ranges which should have provided a zone of strong resistance, was once again taken out with ease, indicating that Palladium is in an extremely strong upward bullish phase. What is even more astounding is the fact that it has managed this in the face of a strengthening dollar; it is the only precious metal that continues to put in a series of new highs in tandem with a rising dollar.

Palladium will now need to trade past the 465-475 ranges for 12 days in a row. If it can achieve this, it will set up the base for a rally that could take it all the way to the 800-890 ranges. If we had to put a time frame on this, we would say that once it trades past the 465-475 ranges for the suggested period of time, it could hit these targets within 12-18 months.

It has managed to trade past the $465-475 ranges for more than 12 days in a row, laying the ground work for a move to the $800-$890 ranges. If Palladium maintains this momentum it could end up striking these targets a lot faster than we originally projected; potentially, it could hit these targets before the year is over.

We have two palladium producers in North America, PAL and SWC, but SWC has a much stronger pattern and so our focus for now will be on this chap.

SWC has had a tremendous run in the past 52 weeks and those who opened up positions early in the game and held onto them are now sitting on decent gains. As we do not like to chase a trend (we like to get in before the crowd jumps in) we are going to offer our long term and short to intermediate term views on this Stock.

Long term view

If SWC can close above $18 on a weekly basis, the odds of it testing its 3 year highs will be rather strong. We would not be surprised if after testing the $23.00-$24.00 ranges SWC experienced a small bout of profit taking. If during this round of profit taking SWC manages to stay above $12, then the next leg up should lead to a test of $30.

The main leg of the battle would begin in $34-$36 ranges; if SWC can close above this level twice on a weekly basis (in other words remain above this level for 2 weekly closes in a row) or trades above this mark for 9 days in a row, the next target will fall in the $48-$51 ranges.

A true bull market does not begin until its all time high is taken out; for SWC this would mean trading past the intra day high of 50.81 and above the closing high of 46.625. Once in the true bull phase, SWC should be able to at least double in price before putting in a long term top; this would equate to a target of roughly $100-$120.

Short to intermediate term outlook

The above chart clearly illustrates that SWC has had a stellar run in the past 12 months; from low to high it has risen over 150%. Thus it would be normal to expect a bout of profit taking to take hold anytime. As long as it does not close below $12 on a weekly basis, the short to intermediate term outlook will remain bullish and a break past $18.00 for 3 days in a row could result in SWC trading to a new 3 year high. In the short term, we would be slightly cautious on how much new money we deployed into SWC as it would be best to wait for a pullback before committing new funds.

Some stats on SWC

Forward P.E. of 11.91

Average sales growth for the past 5 years has been 25%

Total cash on hand 201 million

Total debt 195 million

% of shares held by insiders is a very healthy 52%

% of shares held by institutional and mutual owners is 35% and this accounts for 72% of the float.

Additional factors that support a bullish outlook for Palladium

Worldwide sources of Palladium are rather limited. Over 80% of the world’s Palladium is concentrated in just two countries, Russia and South Africa, with Russia’s accounting for nearly half of the total Palladium supply. Russia has 3 sources of Palladium, the Norilsk Nickel mine, Gokhran and the Russian Central bank. Norilsk mines are the main source of palladium in Russia and production peaked back in the late eighties and output started to fall from the 90’s, primarily due to lack of investment. Once prices started to rise in the 90’s Norilsk started to invest more money into production and supplies of PGM’s started to rise. However, production has started to fall again and to meet these supply short falls the Russian government has been selling Palladium from its stockpiles. This programme has now come to an end and with it roughly 125,000 pounds of Palladium will suddenly vanish from the supply chain. This is going shock the system (the shock process might already be underway) for taking out such a huge amount of Palladium of the market just when demand is rising is the perfect recipe to precipitate a run on Palladium as companies start to hoard supplies for fear of not having enough of the metal on hand. This could perhaps explain why Palladium is the only precious metal to put in a series of new highs in the face of a rising dollar.

Note that world Palladium supplies fell by 1% in 2009 to 6.31 million ounces despite a 5% increase in South African output to 2.48 million ounces. This increase was off set by a drop in Canadian production due to the closure of the Lac des Lles mines at the end of 2008.

Finally let’s not forget the massive amount of interest the New Palladium and Platinum ETF’s are creating. These two ETF’s are gobbling up huge amounts of Platinum and palladium. As of March 2010, PALL holds roughly 520,000 ounces of Palladium; this ETF is barley 4 months old and its Palladium holdings have already surged past the 500,000 ounce mark. It took the London based Palladium ETF over 2 years to accumulate the same amount.

Now add in the lower supplies, increased demand due to the Palladium ETF, voracious increase by the Chinese for Palladium and the eventual hoarding of this metal by the automotive sector when they realise that they could be facing a shortage, all go to ensure that Palladium has a long way to go before a long term top is in place. Our suggestion is use strong pull backs to add to your positions in both SWC and Palladium bullion whenever the opportunity presents itself.

Conclusion

The long term outlook for SWC is extremely bullish. The current pattern is projecting a high probability that its all time high will be taken out; the if factor has been removed and has been replaced with the when factor. In between one should expect a lot of volatility; remember that good things never come about easily; if they do they were not worth it to begin with. Unlike Palladium bullion, there are two factors that come into play for SWC. One is the price of bullion and the second is the overall health of the equity’s markets. If the markets are experiencing a strong correction then SWC might not move up as fast as it normally would, even if Palladium prices are rising. Therefore, it would be wise to have a position in both Palladium bullion and SWC.

Our long term targets for SWC now fall in the $100-$120 ranges. This could one day be viewed as a conservative target; once the real bullish phase of a rally begins it’s not unusual for a stock to at least double in price. A real bull market begins when the all time high is taken out; in this case, it would be $46.625. From a long term perspective SWC has just begun its bullish run.

Do not use a hatchet to remove a fly from your friend’s forehead.
Chinese Proverb

Disclosure; We have positions in Palladium bullion

More articles from the Tactical Investor….

Tom Lydon submits:

Platinum and palladium ETFs are up big since their January launch. Do the fundamentals support a sustained run or will we see a pullback? Let’s take a look at some of the facts.

According to Olivier Ludwig of Index Universe, ETF Securities will be expanding the number of shares available for its platinum and palladium ETFs in response to strong investor demand. In a filing with the SEC, ETF Securities requested to increase the number of shares not yet purchased in Physical Platinum Shares (PPLT) to 7.82 million and in Physical Palladium Shares ETF (PALL) to 12.11 million.

Read more »

Michael Johnston submits:

At the height of the recent financial crisis, it appeared that one of the oldest and most iconic American industries would become one of the biggest casualties. The automotive industry was already reeling from a major dip in demand for its most profitable products when gas prices surged, and the dawn of one of the worst recessions in a generation only exacerbated the struggles. As households and businesses began slashing their budgets, demand for the ultimate consumer product fell off a cliff. Beyond the macroeconomic issues, smaller problems added up to take a toll on the bottom lines of companies that had once been among the most profitable in the world; glitches in Ford’s accounting software resulted in employees receiving paychecks long after they left the company, while General Motors squared off with unions on multiple occasions.

Against such a dismal backdrop, the proposed bailout of the automotive industry became an incredibly controversial package. With a collapse of the industry seemingly underway, the odds of recouping a taxpayer investment in the automotive sector were unacceptably low to many who opposed lending money to sinking ships at General Motors and Chrysler (Ford never accepted any federal bailout money).

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