A platinum ingotILYA NAYMUSHIN
The stock: Eastern Platinum Ltd.
Recent price: $1.38
Trend: Although the metal mining sector was the big mover on the TSX last week, junior precious metal stocks were hot items, many surging amid high volume of trading as gold bullion continued its third-quarter advance. Breakout stocks in the group included CGA Mining Ltd. and Gabriel Resources, which rallied on news that the Romanian government is pressing ahead with its environmental review of the company's long-stalled project in Transylvania - a gold mine that would be Europe's largest. Plays like these tend to get the market's speculative juices percolating.
More generally, though, small-cap gold stocks are helping revive the Toronto market. The BMO Junior Gold Index exchange-traded fund, trading on the TSX since the beginning of this year, is outperforming the S&P/TSX Composite index by 14 per cent in the past three months and has hit new highs for the past five weeks. The S&P/TSX Venture composite index's performance in recent weeks also reflects the small-cap mining strength. It is up 11 per cent already this month.
Investors interested in trading lively junior precious metals stocks don't have to be focused on gold, or silver for that matter. Platinum is an oft-overlooked segment of the category among the broader investing public. However, the metal's important industrial applications - specifically in the automotive industry as an agent for catalytic converters - along with its known appeal in jewellery make miners of this mineral plenty precious.
Like gold bullion, platinum prices are picking up. The E-TRACS UBS Long Platinum ETN and ETFS Physical Platinum Shares advanced 5 per cent last week. While gold and silver prices are tapping new nominal highs, some analysts have pegged platinum for bigger price gains ahead if global economic metrics trend positively. Although platinum does not have the monetary cachet of gold, investors should stay tuned to the metal and its miners.
The trade: Among the rallying small-cap platinum stocks is Eastern Platinum, a Vancouver-based producer of platinum group metals with significant assets in South African mines. It has surged over 30 per cent in September and traded heavily last week. Although trend analysis of volatile penny stocks can be a fool's game, retail investors should evaluate chart patterns of these breakout situations. The stock's aggressive move to $1.50 last week sent it up against resistance that chopped back shares in its January rally. Shares slipped on Friday to close lower, but traders will be looking for the stock to move through $1.50 quickly if it is to challenge the spring high. Speculative investors can use this cue as an entry signal.
The upside: The price of platinum is well off its March, 2008, peak - it would have to add another 30 per cent to reach the $2,200 (U.S.) an ounce mark it hit then - but the metal's recent eclipse of $1,600 takes it above a trading range ceiling. A fuelling of precious metals buying amid growing monetary concerns should help the mineral rally further this quarter and drive Eastern Platinum shares through the next resistance level at $1.70 (Canadian). A 70-per-cent gain to the $2.35 level would be the hopeful objective for shareholders long this platinum play.
The downside: Assumed in this trade is a risk of volatility, and a substantial loss. An exit stands at the base of the current rally, the intermediate-term average share price of $1.08 - 20-per-cent below the current price.