By Jared Cummans
Platinum, one of the more industrious precious metals, has become a popular trading instrument in recent years, as investors have seen the benefits of making a play on this hard asset. Platinum’s uses span from catalytic converters to thermometers and even dental equipment. Given its heavy dependence on an emerging market, South Africa, as far as supply is concerned as well as its massive presence in the industrial world, trading platinum futures has become an ideal play for a number of active investors. Below, we outline the best ways to trade these contracts as well as some helpful tips to help you stay ahead of the platinum curve.
First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading platinum futures.
- New York Mercantile Exchange: Like so many other popular commodities, the CME Group (specifically the NYMEX) dominates U.S. trading for platinum. Contracts currently extend out for one year (with a slight contango), trading in the months of January, April, July, and October. Each contract represents 50 troy ounces with prices quoted in U.S. dollars and cents per ounce. Another benefit to these contracts is that they trade Sunday-Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45 minute break period between each day) [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
- Tokyo Commodity Exchange: The TOCOM is another popular haven for platinum traders as it offers an international spin on this hard asset. Contracts trade in the months of February, April, June, August, October, and December, giving more flexibility than the NYMEX. Also note that this exchange offers a standard platinum contract (of 500 grams) as well as platinum mini futures (of 100 grams), allowing those with smaller capital pools to still make a play on the commodity.
- Multi Commodity Exchange: Finally, investors looking to stay abroad can look to India’s Multi Commodity Exchange (MCX) based in Mumbai. Though the exchange offers fewer months in which to trade, its contracts are representative of 250 grams, giving a nice middle ground to the offerings of the TOCOM. Futures can be traded Monday through Saturday and begin on the 25th of every contract month [see also The Ten Commandments of Commodity Investing].
Common Platinum Trading Strategies
Traders looking for a leg up on platinum trading need to keep its major price drivers in mind. As a commodity that is primarily mined in one country, any kind of strike or disruption in South Africa could have a major impact on prices and the supply/demand makeup around the world. Another key factor to watch will be developments in the auto industry, as roughly half of the world’s platinum is dedicated to use in automobiles. Should platinum be replaced by a cheaper alternative or see its use grow in the coming years, prices will adjust swiftly and accordingly.
For those unable to stomach the risk and volatility associated with futures contracts, there are a number of exchange traded options that can be utilized. The most popular option is the ETFS Physical Platinum Shares Fund (PPLT) which is home to nearly $700 million in total assets, but note that this fund invests in physical bullion, not futures contracts. For those looking to get in on the futures side of the equation, the UBS E-TRACS CMCI Long Platinum Total Return ETN (PTM) and the iPath Dow Jones-AIG Platinum Total Return Sub-Index ETN (PGM) are two popular options.
Disclosure: No positions at time of writing.
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