Platinum ETF Rally After S. African Mine violence


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Platinum and palladium ETFs shot up Friday as the death toll at a South African mine reached 34.

At least 78 other people were injured in clashes between police and workers at the Marikana platinum-mining complex owned by Lonmin PLC, the world's third-largest platinum miner. About 3,000 workers walked off the job a week ago demanding higher wages. Lonmin claims the strike turned violent because of rivalries between two unions.

ETFS Physical Palladium Shares ( PALL ) rallied 4% to a two-month high of 59.73 a share.

UBS E-TRACS Long Platinum ETN ( PTM ) surged 3% to 17.01, a one-month high.

On the futures market, platinum rose 2.37% to $1,477 an ounce. Palladium climbed 3.26% to $609 an ounce.

"I believe this is a news-driven reaction to a possible supply disruption," said Terry Sacka, chief strategist at Cornerstone Asset Metals in Jupiter, Fla. "I don't see this as a sustained rally. We probably won't see significant moves in platinum or palladium until we get the overall precious metals rally."

Both metals are trading near 52-week lows and have lost about 20% in the past year on soft demand from the lagging auto industry, which uses platinum in catalytic converters. The two metals can be substituted for each other. Both PALL and PTM trade deep below their 200-day averages and have weak IBD Relative Strength Ratings in the high teens, both of which are bearish indicators.

Demand for platinum remains soft, said Timothy Evans, chief market strategist at Long Leaf Trading Group in Chicago. He projects platinum will rise to $1,535 an ounce, up 4% from Friday's level. He says he might raise his price target if conflict over the work stoppage worsens.

Thirty times rarer than gold, platinum normally costs more per ounce, but it hasn't since 2009. With 80% of platinum mining happening in South Africa, platinum's prices should surpass gold within a year, says David Morgan, publisher of The Morgan Report, which specializes in precious metals. As of Friday, gold traded at $1,622 an ounce.

Market Overview

In afternoon trade, SPDR S&P 500 ( SPY ) andSPDR Dow Jones Industrial Average ( DIA ) were nearly flat.

PowerShares QQQ ( QQQ ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, added 0.3%.

SPY has rallied 12% from its June low, DIA 10% and QQQ 14%.

"The stock market finally got out of neutral, and may be finally entering the 'sweet spot' of the rally that started in early June," Mark Arbeter, chief technical at Strategist at S&P Capital IQ in New York, wrote in his weekly report. "It is not until everyone and his mother are aboard the bull train that a top will occur."

"When it looks like the market is overbought and ready to roll over, it gets more overbought," he added.

On the other hand, market bears say the market is overbought and are troubled by the low trading volume during the summer.

"The rally involving historically low volume, characterizes a general lack of enthusiasm from individual investors and a strong likelihood that the market is being pushed up temporarily by high frequency or algorithm trading," Jeff Sica, founder of SICA Wealth Management in Morristown, N.J., wrote in a client note. "The market has factored in a positive outcome in Europe, which is highly unlikely, as well as the potential for more printed money from the central bank in September."

The market is "destined to fall as the crisis in Europe accelerates and the Fed fails to rescue the economy," he added. "Although more global stimulus is likely, the impact on the overall economy will be limited."

He expects the market to fall by double digits before the election.

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, was mostly flat, shedding 0.06%.

IShares MSCI Emerging Markets Index (EEM) fell 0.73%, led by a sharp 3% drop in South African stocks.

Economic Reports

The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment unexpectedly improved in August, after sliding for two months, boosting the prospect of stronger household spending this quarter, Bloomberg reported. Retail sales rose 0.8% in July, the biggest increase since February and the first in four months, the Commerce Department reported.

The unemployment rate rose in 44 states in July, the Labor Department reported. Nonfarm payrolls increased in 31 states.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
More Headlines for: DIA , PALL , PTM , QQQ , SPY

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