Furthest Right

Investment Strategies For Conservatives (#4)


When the economy heads into world instability, investors look toward metals as both a hedge against currency in free-fall and a way to turn a quick profit. While most are looking at gold, I like platinum.

My main reasons for liking platinum as an investment are its scarcity plus the fact that it is important as an industrial metal. Platinum currently trades around $1100 per ounce, while gold is up over $1300. Which is odd, because anyone who has ever bought jewelry over the years is aware that it normally more costly than gold. The main reason for this is that platinum is rarer than gold, and gold is already so rare that it is said that you could fit all of the pure gold in the world into one Olympic swimming pool. Platinum also has many indispensable uses in industry such as in the catalytic converters, which are expensive equipment mandatory on all vehicles.

Platinum is cheap now because of onerous EU regulations which target catalytic converters made with platinum, causing reduced demand, and further reduced demadn in China. A handful of miners control the majority of the world’s supply. They are centralized in South Africa. And there are often issues with the mining operations and the miners — which results in volatility for platinum mining stocks. The bottom line is that platinum is important for the world’s economy, and this stuff has to be mined . A conservative minded investor is aware that this is an economic reality.

For the conservative investor, AGPPY, PLG, and IMPUY are the three largest South African platinum miners which you should be aware of as an investor. Investors should also consider the PPLT issues shares in the EFTS Platinum Trust which holds the actual physical platinum rather than shares of ownership in a mining company, though the miner shares have more upside potential overall. A fund like that is more immune to worker strikes, share dilution, and production instabilities.

These stocks are currently trading below $5 per share each, but have traded much, much higher in the past when platinum was more valued. Some of these companies mine other precious metals like palladium and rhodium also. Before purchasing, look at each company and stock in detail to find out which metals they mine, and then track the prices of those metals to see how well the stock will shortly be doing.

One of the big problems with miners is share dilution. This happens when the issuing company wants to fund a new mine project or acquisition the company issues more shares, sometimes below the current share price, to raise capital. That seems to have happened with PLC metal recently, and it happened frequently in the past with a gold miner I have always liked named Hecla. Sometimes the dilution ends up working out on a longer term basis, if the project or acquisition that is being funded becomes profitable, but other companies will dilute the shares while voting themselves a lot of salary and perks. Watch out for that pitfall.

The best thing about precious metals is that their value will always be high, especially in dubious times. We are heading into choppy waters. Most of the market growth over the past two decades has occurred in internet-related industries. Those are not going to last: cell phone and tablet sales have fallen off, IT firms are not hiring, and the “big three” of Google, Facebook and Apple seem to be adrift without a business plan at a time when internet ad revenues are falling. The real risk there is the lack of future plan in the face of declining profitability of their current business model. All three companies bet big on mobile but that craze seems to have ended, leaving a gaping void where the questions of audience, profit and relevance are concerned.

Platinum trading well below gold is a short term aberration and am expecting platinum to eventually re-appreciate to a level slightly higher than gold. Acquiring platinum now buffers you against currency instability and will reap a handy profit when prices go back up.

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