Fool's Gold Report: Platinum Surges As Gold, Silver Bounce Slightly

If all you looked at today were the gold and silver markets, you might conclude that nothing extraordinary happened today. Activity in the major precious metals was relatively subdued, with April gold futures settling up almost $4 per ounce to $1,331.80, while May silver rose just over $0.06 per ounce to $21.35. But even as the SPDR Gold Shares (GLD -0.19%) and iShares Silver Trust (SLV -0.36%) posted tiny moves upward of 0.1% and 0.2% respectively, big gains for platinum and palladium pointed to the differing fundamentals affecting those markets compared to what gold and silver investors have to deal with every day.

Source: Kitco. As of 5:30 p.m. EST.

What made platinum-group metals move so much today?
The key to understanding the platinum and palladium markets is that you can't judge scarcity based on price. Even though platinum is only a little more expensive than gold, the white metals is much less plentiful than its yellow counterpart. That makes the platinum and palladium markets much more vulnerable to supply disruptions, and with so much of the supply of these metals coming from South Africa, the frequent labor strife in that nation frequently causes bottlenecks that have impacts on prices that can last for weeks or even months.

That's what's been going on for the past five weeks, and today's surge in platinum and palladium prices came amid reports that major producer Impala Platinum had declared force majeure on its supply contracts. In essence, force majeure allows Impala and other miners to avoid their obligations under contracts with their customers under certain unforeseeable circumstances that are seen as beyond the miner's control. One could argue that labor unrest is far from "unforeseeable," but for the metals markets, the declaration would be an admission that the conflict between workers and the miner could last longer than some had hoped.

Image: Northwest Territorial Mint.

The news helped boost shares of Stillwater Mining (SWC), which is the only U.S. producer of platinum group metals, by 2% today. For now, the price increases for platinum and palladium bullion are relatively small, and key consumers of the metals, including General Motors (GM -0.04%) and other major auto manufacturers, usually have enough supply of the metals stockpiled to meet their needs for at least short periods of time. Eventually, though, a prolonged labor problem could cause bigger price increases for platinum and palladium, underscoring the importance of industrial demand in distinguishing the platinum-group metals from gold.

Look beyond gold
By contrast, gold-mining stocks were largely quiet today, with the Market Vectors Gold Miners ETF (GDX 0.21%) falling 0.3% and no particularly sharp moves among the biggest mining stocks. But the lesson for new investors in precious metals is that it pays to know the different reasons why various metals move, as you can then avoid the mistake of thinking that gold, silver, platinum, and palladium will always move in the same direction for the same reasons.