Platinum & Palladium Suffer

Platinum and Palladium both suffered their largest weekly drop since late 2008 as they followed falling gold, silver and other commodities and, of course, stock markets across the world.

These two PGMs (Platinum Group Metals) main use is as catalysts in vehicle exhaust systems and since the start of the year have been boosted by the launch of a dedicated ETF (PPLT ) that covers its shareholders by holding the physical metal in the same way as SPDR Gold Trust (GLD) or Ishares Silver Trust (SLV).

The sharper fall in both PGMs is due to their industrial use where vehicle production is perceived to be vulnerable if, as many realists expect, we are entering the second wave of the recession.

We have steered clear of recommending Platinum and Palladium, or their principal miners, for the last two or more years because, for one of a number of reasons, as catalysts they are 100% recyclable.

The advent of the ETF gave a sharp boost to the Platinum price picked up by other PGMs as many smaller investors were then able to easily trade the metal, but equally, if the industrial demand falls off or investors liquidate their holdings then PPLT is likely to be downsizing into a sharply dropping market so potential buyers would be well advised to take these factors into account.

The other, and perhaps more important reason we are hesitant about Platinum and Palladium is that Gold, and to a much lesser extent Silver, are, in our opinion, easier to trade in both volume and volatility terms and do not have as many obscure variables as the PGMs to take into account so the simpler the better.

It will be interesting to see whether Platinum and Palladium follow the rise and fall of Gold and Silver in the next few weeks or that they follow the generally expected downturn of stocks.

Either way, we believe that Gold and Silver physically backed ETFs, bullion and miners offer more profit opportunities to both short term speculators and longer term investors.

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