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Palladium and Platinum -- Reasons to Buy

NEW YORK ( TheStreet) -- Palladium and platinum are likely to offer higher percentage gains than gold and silver during June and for more than one reason.

With the month-long FIFA World Cup beginning June 11 in South Africa, mine supply could be disrupted because of power shortages. Furthermore, metal investors looking for bargains will likely find these precious metals attractive, especially palladium, following the previous month's selling pressure.

Analysts foresee potential supply disruptions for the metals in South Africa, the world's largest producer of palladium and platinum, during the upcoming month. The country is set to witness an upsurge in demand for uninterrupted power supply from cities hosting the soccer matches and tourist spots, during the soccer World Cup.

While Eskom, the state-owned utility that generates 95% of the country's power supply, has committed to providing sufficient power for the extra load, supply to the energy-intensive industries such as mining could be disrupted in order to meet the demand.

Power outages are not uncommon in South Africa. In 2008, the country experienced severe power interruptions and crippled the mining industry leading to supply shortages for both palladium and platinum. As a result, during the period, palladium prices increased to $560 an ounce from $390, while platinum prices rose to $2,100 an ounce from $1,700.

Palladium declined 16.3% at the close Friday from its two-year high on April 21. Over the same period, platinum declined 10.1% whereas gold appreciated 5.6%.

Palladium and platinum managed to recover -- at least to some extent last week -- from the selloffs over the past month. Therefore, the prevailing advantage could well be supported by further buying opportunities, giving investors ample reason to cheer.

Being highly correlated to the metal's prices, palladium stocks Stillwater Mining (SWC - Get Report), North American Palladium (PAL) --- our palladium stock picks -- and Platinum Group Metals (PLG) gained 1.5%, 2.4%, and 5.4%, respectively last week.

Meanwhile, the palladium exchange-traded fund ETFS Physical Palladium Shares ETF (PALL) and the platinum ETF ETFS Physical Platinum Shares ETF (PPLT) gained around 2.3% and 1.3%, respectively.

Being more volatile, palladium and platinum have underperformed gold and silver over the past few weeks over concerns related to the Europe debt crisis. Nonetheless, we anticipate a reversal, at least for a few weeks.

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PPLT $102.40 -1.50%
PALL $58.60 -1.80%
PLG $3.58 5.30%
PAL $0.04 -10.48%
SWC $11.00 -5.50%


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