Platinum investments through ETF’s

By: ispeculatornew
Date posted: 10.12.2010 (5:00 am) | Write a Comment  (1 Comment)

      Post a Comment

In the past 2 weeks, we wrote posts about the prices of Gold and Silver but as was pointed out in the comments, it would be an incomplete view of base metals if we did not discuss Platinum to some extent. Platinum was barely even discussed a few years ago but it has been seen as a great way to profit from the rising prices in these metals. Why? Because it tends to be some type of leveraged play on gold. What do I mean? No, it is not the same as a leveraged ETF on gold as there is no erosion. I simply mean that platinum tends to outperform gold when prices are rising and under performs when prices decline. It’s not a perfect relationship but it has been mostly true in recent years. Thus, as you can imagine, holders of platinum have been very happy in recent months.

What is Platinum?

Platinum is a base metal similar to gold and silver and has been many uses through jewelry, industrial use but also increasingly as a precious metal. One of the big differences with the two others is that the available quantity worldwide is much smaller

One of the issues with Platinum though is that the biggest consumer is Europe which continues to struggle more than the US or Asia. That being said, one of the main industrial uses for Platinum is its use in cars to reduce emissions. Fair to say that such demand is only going to increase over the years which will certainly apply pressure on the prices…

If you are very interested in Platinum’s macro-economic outlook, I would recommend looking at this research from ScotiaMocatta.

Returns

There are many ways to look at Platinum returns, one of them is absolute of course. In 2008, prices of Platinum exploded moving up nearly 200% from $774 to $2252. The main relationship that has been traded though is Platinum’s price relationship against gold. Historically, platinum has increased compared to gold when the economy was good and will often trade at twice gold’s price. In periods of crisis & lack of confidence in the system, platinum under performs gold.

So what are the plays? Many possibilities obviously but one would be to start buying platinum instead of gold as the economy becomes more stable. Long and short investors could also go long platinum against gold as the odds that uncertainty will increase in the near future seem much smaller than the opposite.

Platinum ETF’s

Platinum ETF’s are fairly new and only two of them have existed for more than a year. Both of them are up about 29% in the past year. But the big one that is gaining size very quickly is PPLT, which is a Platinum Trust. The fund owns bars of the precious metal instead of exposure through futures or swaps. That is the same tendency as Gold ETF’s and Silver ETF’s which are both dominated by funds that own the physical stuff. More security and less counterparty/credit/market risks.

Here are the main platinum ETF’s:

[table “177” not found /]


Like gold and silver, some investors prefer holding actual coins or bars and those are also available of course but if you are looking at it from an investment perspective rather than a hedge against apocalypse, I would go with the much cheaper option of owning an ETF that owns the actual metal.

If you liked this post, you can consider subscribing to our free newsletters here


1 Comment

  1. Comment by Stephen — October 12, 2010 @ 10:45 am

    I used to assume all the precious metals move more or less in the same direction until platinum started to have dramatic ups and downs and was wondering what was going on. I had no idea platinum’s price moves differently than gold.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.