Gold, Silver And Platinum? A Precious Metal Play To Consider

by: Christopher F. Davis

I have been recommending gold and silver in physical form or through one of the ETFs that tracks the price of the metals such as (NYSEARCA:GLD), (NYSEARCA:IAU) and (NYSEARCA:SLV) for the last month. I have also been recommending investing in individual miners for each of the metals as well. While the GLD, IAU and SLV are up 5.5%, 5.5% and 13.5% respectively in the last month due to the rising price of gold and silver, one of the world's most precious metals has not been receiving as much attention from the financial media. That metal is platinum, which is rarer than gold and silver and has many applications in industrial sectors.

Platinum can be found in:

  • Automobiles and machinery; used in catalytic converters, spark plugs, and sensors
  • Chemical processing; can serve as a general catalyst to speed reactions
  • Electrical/electronics; found in high-temperature and non-corrosive wires and contacts
  • Glasswork
  • Petroleum/oil refining; serves as a catalyst for crude oil cracking
  • Jewelry; often used as a substitute for gold
  • Dental/Medical equipment
  • Investment form; bullion and coins

Gold is trading at a higher price than platinum recently. This is historically rare and could mean platinum is due for a rebound above gold prices. Since the mid 1990s, platinum has often cost 1.5 to 2 times as much as gold. Platinum currently trades at $1545 an ounce, whereas gold is now above $1670 an ounce. While platinum is up approximately 14.5% this month, I think the current run up may have just begun and thus recommend considering adding to your portfolio in addition to gold and silver.

As I have outlined previously with gold and silver, there are a variety of ways to invest in platinum including physical bullion and coins, ETFs that track the price of platinum, or individual mining companies.

Physical Bullion and Coins: Like gold and silver, platinum can be purchased in physical form such as bullion or coins. Like gold and silver I believe this is indeed the best way to invest in platinum. Platinum can be slightly harder to find in physical form in local dealers but can definitely be found from the major dealers online. Be sure to buy the purest form available. Do your research to find a reputable dealer online to prevent overpaying and/or delivery issues. If possible try to buy locally, as the selling fees and shipping costs from online purchases can eat into any potential return on investment in the near term. Finally, some people invest in physical metals via their IRA and do not take delivery of the physical metal themselves. While I am not entirely opposed to this I prefer investors take delivery to prevent any potential hassles of obtaining and/or selling the assets in the future.

Platinum ETF: One approach that investors should consider to gain exposure to platinum is through an ETF that attempts to track the performance of the price of platinum. The ETF that I recommend is the ETFS Physical Platinum Shares (NYSEARCA:PPLT): This ETF is similar to the GLD and the SLV that track gold and silver. The investment seeks to "reflect the performance of the price of physical platinum, less the expenses of the ETF's operations. The fund designed for investors who want a cost effective and convenient way to invest in platinum with minimal credit risk". Advantages of investing in the PPLT ETF include ease, flexibility of investment and relatively low expenses. The expense ratio of PPLT is 0.60%. Each PPLT share is backed by approximately 1/10th an ounce of physical platinum which is stored in London and Zurich banks. According to the prospectus each platinum bar is numbered and is reported daily on the ETFS web site. Average daily trading volume is around 55,000 shares, making it the most liquid of the platinum ETFs and ETNs. PPLT is much less liquid than other precious metal ETFs such as GLD or SLV, but still adequate for investing/trading purposes. PPLT currently trades at $152.48 a share. It has a 52 week trading range of $133.50 to $186.63.

Platinum Stocks: An indirect way to invest in platinum is through one of the mining companies. Often these companies are engaged in mining platinum group metals that encompass not only platinum, but other rare earths such as palladium and rhodium. My top pick in the platinum mining space is Stillwater Mining Company (NYSE:SWC). In operation since 1992, SWC engages in "developing, extracting, processing, smelting, refining, and marketing palladium, platinum and platinum group metals." The company conducts its mining operations at the Stillwater mine located near Nye, Montana and at the East Boulder mine located near Big Timber, Montana. It is also involved in developing Marathon, a platinum group metal and copper property located in Ontario, Canada. It is also exploring the Altar site, a copper and gold property located in San Juan, Argentina. In addition the company operates a smelter and base metal refinery located in Columbus, Montana. Further, it recycles spent catalyst material to recover palladium, platinum, and rhodium at its smelter and base metal refinery. As of December 31, 2011, the company had proven and probable ore reserves of approximately 42.5 million tons at its Montana operations; and approximately 91.4 million tons at the Marathon development project. The stock currently trades at $10.66 on average daily volume of 1.8 million shares exchanging hands daily. It trades at a p/e ratio of 14.4 with a PEG ratio of 1.57. The 52 week range of the company is $7.31 to $15.95. The stock is up about 32% on the month following the trend of precious metal mining companies outperforming the assets they mine.

Another stock I like in the space that is currently speculative but I believe has a bright future over the long term is North American Palladium (NYSEMKT:PAL). PAL engages in the exploration, mining and production of precious metal properties in Canada. The company explores for palladium, platinum, gold and other metals at its mining sites. Its principal property includes Lac des Iles palladium mine located northwest of Thunder Bay, Ontario. While the company is not primarily platinum oriented they are poised to do well from rising prices of platinum and related group metals. Unlike some of the miners that operate in South Africa who are increasingly faced with geopolitical risk and hyper-inflationary cost challenges, PAL operates in a mining friendly jurisdiction with lower political risk, stable government policies, moderate cost inflation and available labor. The company has moderate debt levels and maintains an ability to finance working capital to support funding exploration and development investment activities. The stock currently trades at $1.94 on average daily volume of 1.01 million shares. The company is currently not profitable on an EPS basis as it continues to expand and develop. The stock has a 52 week range of $1.47-$4.05.

Two OTC stocks to consider are Anglo American Platinum Limited (OTCPK:AGPPY) and Impala Platinum Holdings (OTCQX:IMPUY).

Bottom Line: With rising prices of precious metals stemming from increasing demand, geopolitical tension, risk of inflation and central bank balance sheet expansion, platinum is often overlooked relative to gold and silver. I have recommended gold and silver as well as the companies that mine these metals however I also believe that platinum and platinum companies should be considered for investors looking to allocate some of their portfolio holdings into precious metals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.