What could be more precious than gold? No, it’s not the precious stone usually associated with weddings. Ok, let’s play a guessing game. I’m tarnish resistant, corrosion resistant, high temperatures do not scare me, I’m rare, and I’m sought after for my many industrial applications. What am I? If you guessed platinum you’re right.
In 2009 investors would have earned a return of 56 per cent in platinum, more than double the 24 per cent price appreciation we saw in gold. Due to its scarcity platinum is more expensive than gold. Platinum is so rare that it was once estimated that all the platinum produced throughout history would fit in a 25 cubic feet room. As of Feb 9th 2010 platinum and gold were trading at 1504.00 and 1078.09 per troy ounce respectively.
Approximately 54 per cent of the platinum sold worldwide is used for automobile emissions control devices, 20 per cent is used for jewellery and the remaining is used in laboratory equipment, dentistry equipment and electrodes. Unlike gold which is considered a safe-haven investment, the monetary value of platinum is more volatile and derives its value from industrial demand. Consequently during a recession the price of platinum tends to decrease as a result of fallen industrial demand. Although we have experienced a decline in car demand in Europe and the US, the demand for vehicles in the emerging markets especially China and India are still robust. Along with car demand, regulations regarding emissions also influence the price of platinum. With renewed focus by governments to tighten emissions standards the demand for platinum by the automotive industry will only increase.
With more than 75 per cent of global platinum supply coming from South Africa, any political instability or labour turmoil would have a devastating affect on the price of platinum. In 2008 South Africa was plagued by electricity shortages, another risk to platinum supply. The downturn in the economy and the closing of a few mines has solved the electricity capacity problem for the time being. However once the economy recovers, this extra capacity will dwindle quickly, putting supply at risk.
Despite the supply side risks the demand for platinum will be higher especially as the recovery takes hold. Instead of worrying about storage and personal delivery of platinum bullion there are easier ways to get exposure to platinum in your portfolio. A few physically-backed platinum ETFs have been available in Europe, but more recently we saw the launch of such an ETF in the US market which caused much controversy. Due to the very minimal supply of platinum, miners feared that a platinum ETF would result in stocking up of the metal, resulting in a price surge and industrial demand suffering in the long-term. Nevertheless, ETF Securities Ltd. listed the ETFS Physical Platinum Shares (symbol: PPLT) on the NYSE arca. This ETF is backed by physical platinum held in a vault and has an expense ratio of 0.6 per cent. There are other Platinum ETNs (exchange traded notes) which invest in platinum futures contracts rather than the physical metal. They are iPath Dow Jones – UBS Platinum Trust (Symbol: PGM) and E-Tracs UBS Long platinum ETN (symbol: PTM) with expense ratios of 0.75 per cent and 0.65 per cent respectively. So, when contemplating getting exposure to gold or silver in your portfolio, don’t forget that there is a metal out there that’s more precious than gold that warrants your attention.
Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information