As stable as gold and silver are in diverse economies, investors know that they must diversify their precious metal portfolios for safety and liquidity reasons.  Two metals with very important industrial uses can be successfully used to diversity a gold and silver portfolio.

Buy palladium and platinum to assure diversity in your precious metals ownership.  There is a small window of opportunity opening on these before prices really start to take off.  Analysts and experts claim that precious metals along with most vital substances are becoming increasingly rare and expensive, making them profitable commodities for investors.

Palladium and Platinum

The essential uses of palladium and platinum are especially vital to the automotive industry.  Palladium acts as a hydrogen scrubber that can absorb up to 900 times its own weight of hydrogen.  Platinum known as element 78 is almost twice as heavy as palladium, known as element 46.  Both find extensive use as the main functioning component of the lining of automotive catalytic converters.

Palladium peaked in price in 2000 at more than $1,100 per ounce.  Palladium can be swapped for Platinum in automotive exhaust catalytic converters for as much as 25% of the original amount, and in laboratory uses up to 50% of the original quantity.

With the increased use of palladium prices tend to rise dramatically when automotive makers expand operations.  Emerging markets such as China and India with millions of new auto drivers in the last decade has pushed the demand for palladium and platinum through the roof.  Palladium is twice as abundant as gold, however, only 1 ton of palladium is produced for every 10 tons of gold annually.

Demand is not the only factor affecting the price of palladium.  Palladium is produced principally in Russia and South Africa with 40% of the world’s supply coming from these two countries.  South Africa produces 80% of the world supply of platinum.  South Africa and Russia both have a poor business climate due to lack of observance of contracts.  Investors looking for stable mining companies to invest in have a challenge to look for companies with operations outside of Russia and South Africa.

Types of Investments

Exchange Traded Funds

Two of the best ETFs Exchange Traded Funds include ETFS Physical Palladium Shares (NYSE:PALL) and ETFS Physical Platinum Shares (NYSE:PPLT).

The palladium fund PALL has net assets of $530 million and a low expense ratio of 0.53%.  Formed in January 2010 its price was set to 0.1 ounces of palladium, but now due to market changes and expenses its net asset value is about 7% lower.

The platinum fund PPLT has net assets of $886 million with expense ratio also at 0.53%.  Since its inception in January, 2010, it has slipped about 3% from the original share price tracking 0.1 ounces of platinum.

Mining Companies

Operating two platinum mines in Montana, with a third under way in Ontario, Canada, Stillwater Platinum (NYSE:SWC) has market capitalization of $1.46 billion.  It trades at 9.7 P/E and is 1.8 times net asset value.  In 2011, Stillwater mined 399,000 ounces of palladium and 119,000 ounces of platinum.  This 518,000 ounces was up 6.4% from 485,000 ounces in 2010.  Projections are 500,000 ounces in 2012.

North American Palladium (NYSE:PAL) mines palladium in Ontario producing 147,000 ounces in 2011 with projections to 250,000 ounces by 2015.  The company lost $16 million in 2011 annual revenue and wrote off and additional $49 million from an exploratory gold mine that proved uneconomical to use.  Given current operating expenses it produces platinum at a cost of $448 per ounce and expects to have that at $250 per ounce with the 2015 projected production.  A new gold mine coming on stream is expected to produce 30,000 ounces of gold at cost of $1,150 per ounce.  With market capitalization of $440 million, this mining company’s mature operations and pipeline of growing production offer a leveraged opportunity relative to the price of palladium and gold.

This article is written by Joseph Vietor.

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