Why There's No U.S. Platinum ETF

Yes, investors are flocking to gold ETF as the dollar weakens.

Case in point is streetTRACKS Gold Shares (GLD): after gold surged to a record $992 an ounce earlier this week, the fund traded nearly 11.5 million shares, reports Joanne Von Alroth for Investor's Business Daily. No one is particularly surprised, though.

What is surprising is the performance of white metals.

Platinum, in particular, has continually hit record highs. On Tuesday, it rose to $2,275 an ounce, and is up 50% year over year. The supply has also taken a hit from the continuing power supply problems in South Africa, which are interrupting mining activity. In addition to that, there has been a platinum deficit since 1999. Mining gets about 7 million ounces of platinum a year.

Why, with all of this shortage and growing investor demand, is there no platinum ETF available in the United States? We've been getting a lot of questions from our readers, so we put the question to Kevin Rich, CEO of DB Commodity Services.

"[Platinum] is not liquid enough to support an ETF," is the simple answer. "There are not enough players transacting it."

The last thing anyone would want, Rich says, is for a fund to take money in but find that it couldn't buy the underlying asset. Platinum is scarce enough that it's possible for an investment product to take away the supply. "When you bring in an ETF, you make sure the supply and demand of the commodity are still driving the market," Rich says.

The Commodity Futures Trading Commission [CFTC] is careful to make sure that trading activity doesn't lead to a situation in which investors corner the market.

The London Stock Exchange lists a platinum ETF from ETF Securities [PHPT], and its existence is likely just a matter of different rules and regulations. "They've done things that wouldn't be as easy to do here in the U.S. from a regulatory perspective," Rich says.

The largest silver ETF, iShares Silver Trust (SLV), is up 33.7% year-to-date.

The metal could be benefiting from its versatility. Not only is it used in jewelry and some is held for profit, but it has a number of industrial applications. It's the best conductor of both heat and electricity. It's used in batteries, conductors, fuses, contacts and a water purifier.

You'd think there would be a ton of the stuff lying around, but it isn't the case: the price bottomed in 1980, much of the existing stockpile was melted down and mining slowed down.

Metals, like any commodity, are volatile. They're doing great now, but be wary of sudden dips and watch the trends closely so you know when it's time to jump ship.