Is Platinum A Safe Haven Investment?

November 17, 2010 | By | Reply More

With so much investor attention being paid to the performance of gold since the market meltdown of 2008, it has been easy to overlook the merits of platinum as an alternative precious metal safe haven investment in times of financial turbulence.

The recent advent of an ETF (Exchange Traded Fund) backed by holding physical platinum, PPLT, by London based ETF Securities has opened up the opportunity for US investors to deal in this market as easily as in shares in any other stock market sector.

US traded Platinum ETF

PPLT along with its stable companion PALL ( backed by physical palladium) are quoted in New York, and both have enjoyed an excellent run up since inception earlier in the year, equaling and at times outpacing the Gold and Silver ETFs meteoric rises.

Traditionally it is gold along with its junior partner silver that has enjoyed safe haven status and been considered the ultimate hedge against the ravages of high inflation.

Platinum Critical to the Auto Industry

Platinum is a rarer metal than gold with South Africa responsible for over 70% of annual production. It is said that that the total amount ever mined would fill no more than two Olympic sized swimming pools.

It has a critical role to play in industry where its property as a catalyst in automotive exhausts accounts for its most significant usage. It is also a high fashion metal in the jewelry trade at the very top end of the market.

Now with the PPLT ETF sitting on a store of the physical metal which will only return to the open market, or be removed from it, as the PPLT managers balance holdings against shares outstanding, another usage, if it can be called that, comes into play.

Profitable Opportunities

In past articles before the introduction of PPLT, we have expressed our reservations about the wisdom of investing in platinum, both miners and the physical metal, but now that it is as easy to buy and sell the ETF as any other, a re-evaluation is due.

It has been our opinion in the past that trading in gold and silver metals and miners in the precious metals sector has provided sufficient profitable opportunities for both investors, day traders and other speculators to keep them happy without spreading their “eggs into other precious metal baskets”. It is difficult to argue against this thinking in the past two years as both metals have enjoyed a sustained bull run with plenty of peaks and troughs on the way up to turn a quick profit.

Platinum Demand from China & India

Platinum prices have been very much influenced by the outlook for the automotive industry and consequently by association with the world wide economic outlook. At the same time the transfer of mainstream motor manufacturing and sales from the US and Europe to China and India has tended to cloud the issue.

Both these Eastern economies have not, to all intents and purposes, suffered from the recent recession as have the Western economies. Both have continued to grow across the board with demand for cars and trucks very buoyant.

We investors tend to think in terms of our own home patch, unemployment rising, vehicle sales declining, etc., etc., which thinking tends to directly impact our outlook, for example, on platinum prospects.

Right now most US investors are under the impression that the economy is recovering, Helicopter Bens continuing open-handedness with the greenback will make all things right with the world and it will be safe to order a nice new motor for next spring.

But what if the double dip recession that threatened only a few months ago becomes a reality because Bernanke’s dollar give away results only in a massive inflationary spiral with no financial benefits to Joe Public?

This is no flight of fancy, it is still a possibility and if it happens gold will fly, platinum will sink.

Platinum Recycling

Platinum is a catalyst, simply put it remains unaffected when used as such. It can therefore be reclaimed and recycled ad infinitum. No need for mined production when the number of scrappers balances out new production.

An unlikely scenario but there is no reason to think that recycled metal will not make up the bulk of demand at times of world wide auto production slow downs.

Research Into Cheaper Catalysts

Attempts to find  cheaper alternatives to Platinum Group Metals (PGMs) as catalysts are a constant in the auto industry. Imagine the impact on PGM prices if the scientists succeed.

South Africa’s Problems

South Africa is far and away the major source of platinum accounting for some 70-75% of total world wide annual production.

This year alone we have seen examples of the  growing militancy of the miners union,  the “africanisation” of the mining industry by law, and the continuing problems with electricity supplies that have dogged the country, and particularly the important mining industry, for years.

Also a subject for careful consideration is the political stability of South Africa. These are all factors that could push the price of platinum up.

Sticking to Gold and Silver

So where do we stand on the subject of investing in platinum?

Like many of our fellow so called investment advisors, it is the usual sitting on the fence attitude. Our own inclination is to look for any significant pull back and maybe put in a little spare cash on the basis that a toe in the camp, something tucked away for a rainy day and any other platitudes that come to mind will provide us with an excuse for making a mistake.

Or a reason for patting ourselves on the back! Either way we firmly hold the opinion that there is much more to play for in both the short and long term in the gold and silver market at less risk. If silver pulls back to around $24.50 or lower we will be looking to buy April $28 calls to repeat our last option foray discussed last week in How To Have A Safe Investment Strategy

If you like this idea keep a sharp look out on the silver charts to spot when support holds up.

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Category: Platinum Group Metals

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