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Taking a Chance on Platinum and Palladium Mines

While gold has risen significantly – to nearly $1,000 per ounce in mid-February of 2009 – the price of other precious metals much as platinum and palladium have continued their fall in comparison pricing. Those who are familiar with long-term precious metal investing have been watching both of these metals with great interest as the spot price of both metals has come within just a few percentage points of the gold price.

Precious metal investing encompasses both the purchase of physical coins and bars, as well as more speculative investments such as shares in the mines that produce them. Purchasing shares in mining interests has always proven more risky than buying either physical stocks of platinum and palladium or precious metal certificates. Partly this is a result of mines being subject to the politics and pressures of individual nations, rather than being a commodity on the world market.

Both platinum and palladium mines (and their shares) have come down dramatically in price, some of them to the point of bring purchased by extremely large players. Some analysts claim that when platinum, for instance is within 5% of the spot price of gold, that a large investors begin looking towards it as a good buy, carrying the price upward with rising gold. This strategy certainly appears to be true in the case of Chinese commodity investment groups such as Minmetals and Chinalco and their purchase of Australian precious metal mining consortiums Oz Minerals and Rio Tinto.

Over 80% of the platinum mines in the world are found in South Africa, with tiny amounts to be found in the US and Canada. Though somewhat less politically or economically stable, Russia, Zimbabwe and Columbia also are home to platinum alloy deposits. This means that much of the platinum in the world is found in unstable regions, that make these mines somewhat more dependent upon the stability of the local systems to keep operations running smoothly. Nationalization of mines and violence is a real possibility in some countries, if investments are to be held for the long-term.

Platinum is used extensively in catalytic converters in automobiles. When the price is low, mines slow production considerably, waiting for the price to improve. Palladium is used in jewelery and electronics. When these markets are strong, mining operations quickly pick up to fill the need, since the use of both these metals often exceeds production in good years as were seen in the early 'aughts.

Precious metal investing in either bullion or mines is a viable long-term investment during a downturn in these commodities. Investing in mines requires significantly more research on the part of a smart investor to ensure that the companies in question are fundamentally sound. Mines that have a history of finds and well-publicized reserves that can be backed up with a history of production are often a way to hedge some of the risk associated with these investments.

Article Archive 

Dario Bell 

March 10 ,2009

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