Why Platinum ETFs Are Poised For More Gains [ETFS Physical Platinum Shares, ETFS Physical Palladium Shares]

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January 22, 2014 7:14pm NYSE:PALL NYSE:PPLT

platinum11Although 2013 was a pretty rough year for commodities, the past few weeks have been solid for the space. A weak jobs report pushed fears of more tapering to the backburner, while sluggish stock prices (and a flat dollar) have rekindled investors’ interest

in many natural resources.

While most commodities have benefited from this trend, investors in the platinum market have to be especially pleased. After all, this commodity has risen in the past few weeks thanks to the aforementioned trends, as well as some other platinum-specific factors as well.

Thanks to this, platinum could be well-positioned for solid returns this year, especially if investors see a broadly better environment for commodities. Already the product has seen its price rise from about $1,340/oz. a month ago, to its current level approaching the $1,470 mark, putting the commodity within striking distance of its three month high.

Labor Unrest

Beyond some of the broad commodity factors, the labor unrest in South Africa also played a role in platinum’s rise as of late. A union representing the country’s top three platinum firms has called for a nationwide strike with 90,000 expected to participate. This has led to a drop in production, and continued labor issues in the world’s number one supplier of platinum could help to keep prices firm.

Car Sales

And just as supplies begin to dip, demand is looking to rise, largely thanks to surging automobile sales both here and in Europe. Autos are vital for platinum prices because catalytic converters are big users of platinum-group metals, so when car demand surges, platinum demand tends to go up as well (Read These 3 ETFs Could Soar on Strong Car Sales).

American car demand has been especially robust, with unit sales staying above an annual rate of 15 million since April’s data, but the real story has been in Europe. Analysts and industry executives now are looking for growth in European auto sales in 2014—after six years of decline—suggesting that the platinum-metal group could be in a very solid demand environment this year.

How to Play

For investors seeking to get in on the platinum market, there are a few ETFs that have direct exposure. Easily the most popular is the ETF Securities Physical Platinum Shares (NYSEARCA:PPLT) which has over $750 million in assets under management.

The fund invests in bars of platinum and holds them in a secure European facility, charging investors 60 basis points a year in fees for this service. The ETF is pretty much flat over the past three months, though it has added nearly 9% in the past one month time frame and could be poised for more gains in the months ahead.

There are also a few ETNs in the platinum space including the iPath DJ UBS Platinum TR Sub Index ETN (NYSEARCA:PGM) and the UBS E-TRACS Long Platinum TR ETN (NYSEARCA:PTM). Both of these suffer from lower assets and low volume levels, though they have seen similarly good performances over the past one month time frame.

Other Options

Investors also have access to the First Trust ISE Global Platinum Index Fund (NYSEARCA:PLTM) for platinum exposure. This fund focuses on companies that mine or process the metal, and it too has added nearly 10% in the past month.

Volume and assets are a little low here, while expenses come in at 70 basis points a year, but it is the only pure play on platinum mining companies. The focus for this fund is on international firms in the small cap space, so volatility could be high though it is a solid choice for equity access to this platinum investing story.

ETF Securities Physical Palladium Shares (NYSEARCA:PALL)

Palladium is also used in many catalytic converters, and it can suffer from some of the same supply problems as platinum. For this reason, PALL may also be an interesting choice for investors (read Time to Buy This Precious Metal ETF?).

This product also holds bars of its metal in a secure European facility, and it charges investors 60 basis points a year in fees too. It is a bit less popular than PPLT—not too surprising given that palladium also appears to be less popular than platinum in the metals market—but it has added over 6.8% in the past month and could be another way to play the supply imbalance in the broader platinum group metals market.

Bottom Line 

Thanks to some contrarian buying, and hopes for a taper hold, commodity investing has been reasonably profitable as of late. Investors are finally starting to embrace some products again, and fundamentals are setting up nicely in a few corners of this asset class.

This is especially true in the case of platinum, as the metal has taken off as of late, and could be well-positioned for more gains in the months ahead. Both labor issues in South Africa and rising car demand seem likely to boost platinum prices in the months ahead, suggesting that a look to platinum ETFs could be a solid idea, particularly if the commodity investing environment is a bit more favorable this year.

Author is long PPLT

This article is brought to you courtesy of Eric Dutram.

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