By Jean Folger
The six metals of the platinum group are some of the least abundant of Earth's known elements, occurring in close association with one another, and where nickel and copper are found. Of the platinum group metals (known as "PGM"), platinum and palladium are found in the largest quantities and are the most economically significant. Less than ten significant PGM mining companies exist; South Africa is the largest producer, followed by Russia and North America.
Prized for its extreme resistance to corrosion and its ability to catalyze reactions such as those vital in the refining of crude oil into gasoline, platinum is essential in a variety of laboratory and industrial applications. The catalytic converter - a vehicle emissions control device - is the most widely-used application of platinum group metals. Jewelry is the second largest sector of PGM demand. Platinum is also used for biomedical applications, crucibles, dental alloys, electronic devices, glass, hard disks, silicones, turbine blades, and watches. And, like gold and silver, platinum is a popular investment metal.
The price of platinum is driven by several supply and demand factors. The majority of annual production occurs in South Africa, and trends and conditions in this volatile emerging market affect platinum prices. Economic and political circumstances, as well as natural disasters, mining strikes, and other supply disruptions impact the supply of platinum.
The auto industry is another key driver of platinum prices. Because the catalytic converter is the largest application of platinum group metals, the health of the auto industry has a huge effect on the demand for platinum. When the auto industry is healthy, there is generally an increased demand for platinum; conversely, demand (and prices) for platinum can drop during slow periods in the auto industry [see also How to Trade Platinum Futures].
As technology develops and replacements for platinum are found, demand for the rare metal could be reduced. An increase in the number of electric cars, for example, could decrease the demand for catalytic converters. And the substitution of other, less expensive metals (like palladium) could negatively impact the demand for platinum.
Like other commodities, a number of exchange-traded funds are available that provide investors with exposure to platinum. The ETFs may track the futures of platinum, or may hold physical platinum in secure vaults.
- ETS Physical Platinum Shares (PPLT): In terms of physical exposure, ETF Securities Physical Platinum Shares is the most popular ETF, holding physical bars of platinum in European vaults. Sponsored by ETF Securities, it seeks to reflect the performance of the price of platinum (less expenses), providing investors a cost-effective means of investing in platinum without having to purchase, store, or insure physical platinum. The fund currently has about $675 million in total assets.
- iPath DJ-UBS Platinum Subindex Total Return ETN (PGM): Issued by Barclays Bank PLC, PGM provides investors with exposure to the Dow Jones-UBS Platinum Subindex Total Return, and seeks to reflect the returns that are potentially available through an unleveraged investment in platinum futures contracts and the potential interest rate earned on cash collateral invested in Treasury Bills. Thus far, PGM has accumulated roughly $28 million in assets.
- UBS E-TRACS Long Platinum Total Return ETN (PTM): UBS E-TRACS Long Platinum TR ETN provides investors with exposure to a portfolio of platinum futures contracts. PTM is an exchange-traded note designed to track the performance of the UBS Bloomberg CMCI Platinum Total Return. The Index measures the collateralized returns from a basket of futures contract on platinum, targeted for a constant maturity of three months. PTM's strategy has afforded it just over $30 million in assets.
- E-TRACS CMCI Short Platinum Excess Return (PTD): E-TRACS CMCI Short Platinum Excess Return provides exposure to a portfolio of platinum futures contracts. PTD is an exchange-traded not designed to track the short (inverse) performance of the UBS Bloomberg CMCI Platinum Excess Return, and a fixed-income return based on a theoretical 91-day Treasury Bill portfolio. The Index measures the uncollateralized returns from a basket of futures contracts on platinum, targeted for a constant three-month maturity. As a trading instrument, PTD has just $3 million in assets.
- First Trust ISE Global Platinum Index Fund (PLTM): First Trust ISE Global Platinum Index Fund seeks investment results that correspond to the price and yield of the ISE Global Platinum Index, investing at least 90% of assets in stocks that comprise the Index. The Index provides a benchmark for tracing public companies that are active in platinum group metals mining. Launched on March 11, 2010, this miner fund has just over $7.7 million in assets.
Disclosure: No positions at time of writing.
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