By Sumit Roy
William Rhind is managing director at ETF Securities, a leading independent provider of ETFs. The firm, which in 2003 pioneered the world’s first physical gold ETF in Australia, has launched seven physically backed precious metals ETFs in the U.S. Those include the ETFS Physical Platinum Shares (PPLT), with nearly $800 million in assets under management. HAI’s Sumit Roy spoke with Rhind to discuss the precious metals market and particularly platinum and palladium, which have been rallying in recent weeks.
HardAssetsInvestor: What do you make of the recent surge in holdings for some of the precious metals ETFs? The iShares Silver Trust (SLV) made headlines recently with a one-day, 18-million-ounce spike in its holdings; we’ve also seen big gains in platinum and palladium ETF holdings as well. Who is buying, and will it continue?
Rhind: Yes, what we’ve seen from the beginning of this year is better economic data out of China and the U.S. And that’s supportive of the white metals — silver, platinum and palladium. Those are, of course, the industrial metals, so they’ve benefited from that improvement in the economy.
In terms of who are the main buyers — for silver, it’s more retail. For platinum and palladium, it’s more institutional. They're more institutional just because they are less understood. They have a lower profile than silver and gold. There are more specialist players in platinum and palladium.
HAI: There has been increasing speculation that the Fed could end its QE programs this year, as the U.S. economy improves. How will that impact the 12-year bull market in gold?
Rhind: Of course, that is all predicated upon that macro view. The Fed and other central banks around the world have embarked on very expansionary monetary policy, and have articulated very clearly to markets that they're going to anchor interest rates at a very low position for many years to come. It would be surprising if there was any change in that, certainly in the short term. Although the economic data have been better here in the U.S., we’re not convinced it lends itself to the point of being able to reverse monetary policy at this stage.
HAI: Anglo American Platinum (AAUKF.PK) recently announced huge cuts to its mine production in South Africa. Of course, there's always the threat of strike activity in that country. How strong are the supply-and-demand fundamentals for platinum and palladium right now?
Rhind: Strong. And they have been strong for awhile. The only reason prices aren’t even higher in both metals is because of the macro overhang of a depressed global economy. But if you look at the fundamentals of platinum and palladium, you know demand has been strong for both metals. Moreover, we’ve had severe supply issues in platinum, which has spilled over into palladium, given that South Africa accounts for 40 percent of world palladium supply as well. Platinum and palladium have both been disrupted on the supply side, and that’s certainly supportive of fundamentals.
HAI: Why has palladium been outperforming platinum? Will that continue?
Rhind: It’s been outperforming because it’s come from a lower level. Platinum very much hogged the limelight last year, as the principal beneficiary of the South African strikes. Palladium was a little bit ignored, and it was oversold in the market. Therefore, people are playing catch-up a little bit on the palladium side.
HAI: Gold traded at a historical premium to platinum during 2011 and 2012. But it seems like platinum is regaining some ground. Is the ratio between gold and platinum significant at all?
Rhind: It’s significant for some people. It’s like all ratios: It’s the relative value of one metal versus the other, which can be incredibly meaningful to some people and less to others.
It’s meaningful from a historical perspective; platinum has historically traded at a $200-$250 premium to gold. It’s very unusual for platinum to trade at a discount to gold. Even in the English language, the word “platinum” has become synonymous with “above gold.” A platinum credit card is better than a gold credit card, etc.
In English, we think of platinum as being superior to gold. Thus, to see platinum prices revert back to parity with gold, and even go back to a small premium, is just reverting to the historical mean.
HAI: What do you think is the most underreported or underappreciated story in precious metals right now?
Rhind: It’s the supply problems, particularly in platinum and palladium. The coverage of the South African supply situation — particularly as it relates to the political situation and the strikes — was well covered. But the translation to what that meant for platinum and palladium was less clear to investors. And that’s why you didn’t see the investment money flow into the metals in a way that you might have expected if, for example, there was a big supply shock or supply crisis in gold.
HAI: How much upside potential do you think is in these markets? Could platinum ever revisit prices above $2,000?
Rhind: Yes, it could. Platinum reached an all-time high in the beginning of 2008, a year that, of course, would become forever infamous with the global financial crisis and collapse that ensued later that year. From 2008 onwards, you could make the strong argument that we've had a depressed global economy.
Platinum and palladium are principally industrial metals; thus, they are very much linked to global GDP. Although their prices have recovered from their lows of 2008, platinum and palladium will almost certainly continue to perform strongly in an improving global economy. We’re seeing more and more demand for the metals, be it in the auto industry, in high technology such as mobile phones, such as flat-screen TVs, and other forms of new technology.