Time to Invest in Platinum ETFs? - ETF News And Commentary

 

Platinum is often called “rich man’s gold” and "most precious of the precious metals", due to its rarity and thus historically, it has commanded a price premium over gold. Precious metals are usually considered safe haven assets and inflation hedge but the precious metals from the platinum group also have important industrial applications and hence their price is determined more by economic trends than by their safe haven status. At the height of the global financial crisis, platinum prices fell from a high of $2,276 per ounce in March 2008 to $898 per ounce in December 2008. (read Gold ETFs May Continue to Shine in 2012)

Correlation between platinum and gold has been volatile, ranging from nearly 100% to negative, but has mostly been positive, averaging about 60%. The platinum-gold price premium reversed direction in September last year, as fears of a global slowdown resulted in investors seeking gold for its status as an alternative currency in addition to its safe-haven status. In early December, platinum was cheaper than gold by more than $200 an ounce. The trend has begun to change this year as recent data suggests that US economy is on a slow recovery path and the problems in the euro zone are more or less contained. January 2012 was a strong month for platinum. Platinum prices are up ~19% year-to-date, compared with ~11% for gold. Currently, gold trades at about $80 premium over platinum.

Apart from the improvement in broader global economic outlook, rising demand from auto-manufactures and supply problems in South Africa (related to labor issues and electricity issues) have pushed the platinum prices up. (read Looking For Safety? Try These Money Market ETFs)

Platinum’s supplies come mainly from South Africa (~67% of total supply), while Russia is the second largest supplier. The vast majority of the world's platinum demand is driven by auto-catalyst and jewelry production, which accounted for 39% and 31% total gross demand in 2011, respectively.

ETFs provide a cost effective, secure and convenient way of gaining exposure to the group of precious metals. Transaction cost for buying and selling ETF shares is usually lower than the cost of buying, storing and insuring physical precious metals.

ETFS Physical Platinum Shares (PPLT)

Created in January 2010, this ETF tracks the performance of platinum’s price, less expenses. The shares are issued by ETFS Platinum Trust, which holds physical platinum bullion bars in vaults in London or Zurich. Expense ratio is 0.60%. With total assets under management at ~$800 million, this ETFs is the largest physically backed platinum ETP.

iPath DJ-UBS Platinum ETN (PGM)

Created in June 2008, this ETN currently has assets worth $34.9 million and expense ratio of 0.75%. The investment tracks Dow Jones-UBS Platinum Total Return Sub-Index, which reflects the returns from investment in platinum futures contracts and the interest that could be earned on cash collateral invested in T-Bills.

E-TRACS UBS Long Platinum ETN (PTM)

Launched in May 2008, this ETN tracks the CMCI Platinum TR Index, which measures the collateralized returns from a basket of platinum futures contracts. The commodity futures contracts are targeted for a constant maturity of three months. It has total assets of $36.7 million and an expense ratio of 0.65%.

Considering that PPLT is the largest, most liquid and cheapest ETF, we believe that this is most suitable ETF for investors seeking to gain exposure to platinum metal. Further, it is physically backed by platinum bullion, whereas the other two track futures contracts and are thus subject to credit risks.

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