The Hidden Precious Metal

While everyone talks about gold and silver, at times it can pay off for an investor to get into a precious metal before everyone else does. The precious metal that shows a lot of promise for the near future is palladium.

Palladium has several characteristics that are common with gold and other precious metal commodities, plus a few unique on its own. For one, more investors are seeing palladium as a store of wealth, in addition to traditional industrial uses, such as automobile manufacturing. With the recent American Eagle Palladium Bullion Coin put into production, this has added more demand for a relatively short supply of this precious metal.

This is one of its strengths as a precious metal: the supply line is very thin and fragile. Its supply lines are tight and this draws heavy interest from large firms to junior mining stocks that mine this precious metal. Gaining more reserves by buying or partnering with junior mining stocks is one way larger firms can add to their future supply lines.

When it comes to mines, South Africa produces approximately 40% of the world’s production of palladium. The problem is that electricity is always precarious in that part of the world, with one major supplier. There have been issues with blackouts and disruptions of electricity, causing firms to temporarily halt production schedules.

Such problems and tight supplies only increase the attraction to junior mining companies that can add more reserves to the market in an area with potential low mining problems. One such interesting firm is North American Palladium Ltd. (AMEX/PAL). This precious metal miner owns several properties and two mines. Like many junior mining stocks, there are several precious metal commodities that this firm extracts, including palladium, platinum and gold.

Chart courtesy of www.StockCharts.com

One advantage when investing in junior mining stocks involved in the precious metal sector is a large possible move up in their share price. However, this also brings with it substantial risks as well, so make sure you understand your own risk profile and conduct due diligence to see if this precious metal miner fits in your portfolio.

One of the advantages of this precious metal miner is that it has significant properties in Canada. An area that encourages mining and is in close proximity to the U.S. market is always a benefit for junior mining stocks looking to partner up with a larger firm or even potentially sell themselves once reserves are fully established.

This precious metal miner has had a tough year, but it appears from the chart that the bottom might be in last October. While in a tight range, the $2.50 area has shown significant support. A move above the 200-day moving average would be seen as extremely bullish.

When looking at junior mining stocks, don’t forget to investigate where they have their properties and some of the potential problems of actually extracting the precious metal commodities from the ground. It’s no good to an investor of junior mining stocks if the property is in the middle of nowhere with electricity problems and no roads. All of these potential pitfalls are costs and erode the profits of selling the precious metal.