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Home » News & Research » Energy & Commodities » Platinum ETFs For Capturing This Year’s Rally

Platinum ETFs For Capturing This Year’s Rally

By on November 10, 2012     

Platinum has a reputation for being one of the few materials that is more expensive than gold and commands high prices because of its relatively low supply.  Recent uncertainty in the markets has led many investors to flock to safe haven assets and, historically, precious metals have performed well in this type of environment.  An added advantage of having exposure to platinum is that it is not only used in fashion items but is also used for many industrial operations as well.  Because of this, investors need to pay attention to changes in the underlying economic trends and not simply in whether or not the wider market is looking to reduce risk and move into safe haven assets.

One event that should be remembered is that when the credit crisis in the US was hitting the stock markets hardest, prices in platinum actually dropped from their yearly highs above $2,270 to trade to new lows below $900 per ounce.  Examples like this show some drastic deviations between the prices of gold and platinum, which can range from very high to nearly zero.  Historically, the correlation between the two metals remains positive at roughly 60%.  Last year, gold prices overtook those seen in platinum as risk aversion brought attention to gold as a currency alternative and a long-running safe haven asset choice.

This year, however, the trend started to reverse once again, as economic data in the US began to suggest economic recovery and the effects of debt contagion in Europe were limited by central bank rescue programs.  To start 2012, prices in platinum rallied nearly 20% (year-on-year), which was roughly double the performance seen in gold prices.  Part of the reason for this has stemmed from the improved outlook for the global economy but also from increased demand from the auto industry and limited mining production in South Africa(which is where the majority of platinum supplies are mined).

Given this change in trend, it makes sense to look at ways to capitalize on this activity, and ETFs give investors an easy, efficient and secure method for capturing some of these gains.  Trading fees charged when dealing with ETFs tend to be much lower than the costs associated with physically buying platinum, so here we will look at some of the best providers of EFTs with platinum exposure.

The ETFS Physical Platinum Shares Fund (PPLT) was started in the beginning of 2010 and is based on the price of platinum itself (minus transaction costs).  The expense ratio is for the fund is 0.6% and shows total assets under management at $800 million, which makes this fund the largest in terms of the platinum that is physically held.

Next is the iPath DJ-UBS Platinum Fund (PGM), which was initiated in the middle of 2008 and is comprised of assets totaling $35 million.  The expense ratio of 0.75% and its performance tracks the Dow Jones/UBS Platinum Index (which is derived from platinum futures returns plus the current interest seen in treasury bills).

Last is the E-TRACS UBS Platinum Fund (PTM), which was also started in mid-2008 and is based on the CMCI Platinum TR Index.  Performance is based on platinum futures contracts with three-month maturity dates.  The ETF expense ratio is 0.65%, and total assets are valued at $36.8 million.

Of these three options, PPLT is the largest, shows the highest liquidity levels and is offered at the cheapest rates, which makes its stand out above the others and will offer investors an attractive option when looking to capitalize on the latest rallies in precious metals.  Platinum investors will be looking to limit their total credit risks, and because of this PPLT is most suitable of the three.


About the author

Richard Cox

Richard Cox is the author of Core Concepts in Technical Chart Analysis and has published a daily fundamental and technical analysis of the major asset markets (stocks, commodities, forex) for a variety of news outlets. He has a Bachelor’s Degree in History and a Master’s Degree in Finance and currently lectures in International Trade for university students in Nanjing, China.

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