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Platinum ETF in Focus on More South Africa Worries

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While most investors in emerging markets are zeroed in on the events in Turkey, tensions in South Africa are heating up as well. In that major emerging market, labor issues have resulted in violence once more in the nation’s all-important mining sector, casting another shadow over the country.

The latest flashpoint in the miners’ ongoing struggle comes to us in the town of Marikana, roughly 70 miles from the country’s largest city, Johannesburg. According to a report from the BBC, one worker from the National Union of Mineworkers was shot dead at a Lonmin mine, while another was critically injured as well.

While it remains to be seen who is responsible for the attack, the timing and location of the murder aren’t helping matters either. That is because in the same town in August last year, almost three dozen workers were killed by police, while just this past week a Swiss firm fired about one thousand workers from their jobs after striking (read Time to Invest in Platinum ETFs?).

If that wasn’t enough, the National Union of Mineworkers appears to be in a ‘turf war’ with the rival Association of Mineworkers and Construction Union. This battle has also claimed the lives of many South Africans, and it could add a new angle to the labor tensions in the country.

Furthermore, the recent violence and strikes around the nation could lead to a rough mid-year period for the sector, and make investors pause before putting their money to work in the country. And as we have seen in the case of Turkey, a small increase in terms of risk can lead to a big charge in terms of investment outlooks.

ETF Angle

While these worries over more violence could definitely drag down the main South Africa ETF (EZA - Free Report) , it could end up having a bigger impact on some precious metal ETFs instead. In particular, ETFs targeting platinum could be extremely volatile if conditions in South Africa worsen (read Why You Should Avoid the South Africa ETF).

That is because much of the violence and the labor unrest has been focused around South Africa’s platinum belt, a region that is responsible for a majority of the world’s production of the metal. In fact, South Africa alone accounts for nearly 80% of all the world’s platinum production, so any fears of strikes, unrest, or a general lack of production could send prices shooting higher for platinum.

This is especially true considering the relative rarity of platinum when compared to other precious metals. The product is the priciest of the four precious metals, and all the platinum ever mined could fit into a 25 cubic foot box, so this level of scarcity can produce big spikes in volatility as well.

Given this potential powder keg, investors may want to pay close attention to the ETF Securities Physical Platinum Shares ETF (PPLT - Free Report) . This represents the best pure play investment on platinum in physical form, and it could be in focus given the rising tensions in the region, and the importance of South Africa to platinum production overall (see Time to Buy this Precious Metal ETF?).

Shares have already started to react a bit to this possibility, as PPLT rose by about 3.1% in Monday trading, representing a nice reversal from the previous month or so. In that time period, PPLT struggled like many other commodities, slumping by about 3% in the time frame.

Yet with these fresh worries acting as a catalyst for platinum, this new upward trend could hold for some time. That is why we are maintaining our Zacks ETF Rank #2 (Buy) on this fund and are looking for this precious metal to be a top commodity performer this summer, and especially so if more trouble strikes the South African market in the weeks ahead.

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Author is long PPLT.

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