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Silver and Palladium Stocks, ETFs That Shine - 20482 views
For whatever reason, market pundits and commentators seem to always focus on gold when it comes to the precious metals market. I am guilty of this myself, considering that I just penned a piece about a number of gold plays that could be setting up to make some big moves.
While it’s true that right now the price action in gold is acting very bullish, the price action in two other precious metals -- palladium and silver -- is on fire as well.
Just take a look at the performance of the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Silver Shares ETF (SIVR) over the last six months. The PALL has advanced more than 16% and the SIVR has traded up 17%. In fact, both of these ETFs are outperforming the SPDR Gold Trust ETF (GLD), which is up a little more than 10% in the last six months.
So what is driving the moves in palladium and silver? It looks like Palladium is seeing strong demand due to a pickup in industrial production. Palladium is used heavily in the automotive industry along with platinum, which is represented by the ETFS Physical Platinum Shares (PPLT). Recently, Bloomberg.com reported that auto sales in Russia are set to advance by 13% in 2010 to 1.7 million vehicles. This is just one example that automobile demand is picking up in certain parts of the emerging world.
Strong demand for platinum and palladium can also be seen in the jewelry market and just simply as an investment allocation choice among retail trades and institutional trend traders.
Silver is also in heavy demand from the industrial sector, especially from the solar-panel makers. Plus, silver is following gold higher in the fear trade. Some market players think that silver and gold have in a way become the new reserve currencies around the globe. Both metals have very liquid markets that central banks around the world can move in and out of rapidly.
Here's a look at a number of silver and palladium stocks and ETFs that could be setting up to make some big moves.
Two ways to play the silver market that look very compelling are the iShares Silver Trust ETF (SLV) and the aforementioned ETFS Physical Silver Shares ETF.
The ETFS Physical Silver Shares ETF is an investment trust that holds silver bullion and has an objective to reflect the performance of the price of silver, less the Trust’s expenses and liabilities. This silver ETF is quickly approaching some heavy overhead resistance at between $19.29 and $19.80 a share. Market-players should watch the action in this ETF as it approaches these crucial levels. If this silver play manages to trade above $19.80, it would mark an all-time high. I think a move above $19.80 on volume that eclipsed the three-month average daily volume of 157,000 would be very bullish.
The iShares Silver Trust ETF is a grantor trust that’s objective is to, at any given time, reflect the price of silver owned by the trust less the trust’s expenses and liabilities. This silver ETF saw a gigantic volume up move on Wednesday, when more than 15 million shares traded hands, compared with the three-month average daily volume of around 7.5 million shares. The stock finished the heavy volume day up around 3%. Market-players should watch for a breakout on the SLV above its all-time high of $20.40. Some key near-term resistance levels you should also watch will come into play at $18.94 and $19.44 a share. Moves above those levels would signal very constructive price action.
If you’re looking for an individual stock play on palladium, I would suggest taking a look at North American Palladium (PAL). This company is a Canada-based precious metals company that owns the Lac des lles palladium mine in northwestern Ontario, the Sleeping Giant gold mine in northwestern Quebec and several exploration properties in the Abitibi region of Quebec.
Recently, North American Palladium reported the disappointing second-quarter result of a wider net loss, but the company also earned revenue not achieved the year before. The wider net loss was mostly due to production costs and higher amortization and exploration expenses as the company ramps up its mines to meet global demand.
This company has an extremely strong balance sheet with about $150 million in cash and no long-term debt. Shares look cheap at a forward P/E of 9.3 with a market cap of $470 million. From a technical standpoint, North American Palladium will look a whole lot healthier to market technicians if the stock can manage to get above its 50-day moving average of $3.27 and its 200-day moving average of $3.68.
An individual stock play on silver that looks very compelling is the second largest primary silver producer in the world, Pan American Silver (PAAS) . This company is engaged in silver mining and related activities, including exploration, extraction, processing, refining and reclamation. The company produces silver in Peru, Mexico and Bolivia, and it has project development activities in Peru, Mexico and Argentina and exploration activities through South America and Mexico.
This silver player has managed to increase silver production by 105% since 2004. In 2009, the company produced 23 million ounces of silver from its Latin American assets. For 2010, Pan American Silver anticipates production to increase to 23.4 million ounces. Recently, the company reported a new quarterly record for silver production at 6.9 million ounces and declared a second semiannual cash dividend of 2010.
Technically, this stock is showing increasing signs of strength, with shares now trading above both the 50-day and 200-day moving averages. Investor should watch for a move above $28.38 a share to confirm a near-term breakout. If this stock can trade above that overhead resistance level, I think it can set up to make a run at the next area of significant resistance at around $37 a share.
At the time of publication, author ownded GLD call options.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.