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Published: October 27, 2010
Back in the heady pre-recession days, all
was right with the world. Global production was booming and
precious metals prices were through the roof.
Since then, gold has punched through to reach record prices, as
producers work furiously to get it out of the ground and
investors continually snap up the metal on the hopes that won't
go into a freefall.
If you bought into platinum back in the spring of 2008, when it
hit a high of $2,252 on the spot market, you weren't so lucky.
It was a rough ride, watching that metal tumble down to a low of
$774 later in the investment doldrums of 2008. The
roller-coaster is climbing the next hill, but it's a steep one,
to reach that peak again.
Platinum has recovered substantially in the past two years, and
it has followed an historical trend of outperforming gold, as
the pace of production picks up and industrial demand increases.
Still, platinum is -25% below its record spot price.
Amid fears that the gold bubble is going to burst, some
investors might wonder if platinum could be in for a similar
meltdown, should gold beat a hasty retreat.
Platinum, and its sister precious metal palladium, share several
traits with gold. Investors crave them and manufacturers need
them for a variety of purposes. For many people, their stash of
platinum is found in the catalytic converter attached to their
car or truck.
Let's look at three factors that could determine where platinum
is headed in debating whether it can climb back up to those
pre-recession levels.
1. Consider the source
Platinum is one of the rarest of the precious metals, often a
byproduct of nickel and copper mining, with annual production of
around 7 million troy ounces.
While platinum can be found in many regions including South
America and parts of the western United States, South Africa is
the world's leading producer, with almost an 80%
market share in 2009. Russia was a distant second, with 11%.
Relying primarily on one source for platinum is worrisome. Every
miners' strike, political tremor or other production disruption
triggers a ripple in the trading pits. Labor problems in South
Africa pose a real threat to the world's supply, and the mining
companies are facing increasing worker costs.
2. Consider the uses
As mentioned, platinum is needed for catalytic converters in
automobiles. Current fuel cell technology also uses platinum,
which unlike many metals, is non-magnetic.
While about half the platinum production is
used for vehicle emissions control, about one-sixth goes toward
jewelry, with smaller percentages used in electronics and other
industrial uses. Some even is needed for certain cancer-fighting
drugs.
Platinum's unique properties make it popular for jewelry. Fine
watches often have platinum cases, because unlike gold, it never
tarnishes and doesn't wear.
Recycling of catalytic converters is leading to the recovery of
a substantial amount of platinum. But demand continues to rise,
especially as China's demand for automobiles continues to
increase.
Concerns over climate change are also expected to lead to
increased use of the antipollution devices in more industrial
equipment. But production isn't expected to drastically
increase, in the near term, to meet the rising demand.
3. Consider the options
As an investor, there are several options to consider. Holding
the metal itself is possible, with the New York Mercantile
Exchange among the exchanges trading
futures and options contracts -- but not practical.
Instead, investors have taken notice of platinum
exchange-traded funds (ETFs). The first platinum ETFS
appeared in places like the Johannesburg Stock Exchange, but
others can now be found on U.S. markets as well.
Investment demand picked up this year with the launch of the
first U.S.-based platinum and palladium ETFs, the ETFS
Physical Platinum Shares (NYSE: PPLT) and the ETFS
Physical Palladium Shares (NYSE: PALL). Both are secured by
physical bullion that ETF Securities has locked away in vaults.
Another option is the First Trust ISE Global Platinum Index
Fund (Nasdaq: PLTM), which monitors the ISE Global Platinum
Index, a benchmark tracking the top mining companies.
Action to Take --> The
global economic recovery holds the key for where platinum is
going and could provide more of a money-making opportunity for
investors, along with palladium and silver, than a top-heavy
gold market. PPLT is heading toward the highs it saw last April,
before European market turmoil entangled many of the precious
metals. The fund is a good option for investors to consider,
although the other platinum funds mentioned certainly merit
consideration as well.
-- Paul Rolfes
Contributor
StreetAuthority |
