I have long been a fan of platinum as an investment. I even launched the world’s first newsletter devoted to it in 1988, with a subscription uniquely priced at one ounce of the metal. It failed — at that time hardly anyone was interested in investing in platinum.
Today it’s a different story. The six platinum group metals (PGMs), of which platinum and palladium are the most important, are attracting increasing investment interest.
Platinum group metals: rarer than silver and gold
They are, after all, much rarer than gold or silver. Very few ore bodies are rich enough to be mined primarily for the PGMs, and those are almost exclusively in South Africa. However, a lot of metal is won as a by-product of nickel mining in Russia and Canada.
Platinum has risen 18 per cent in dollar terms over the past 12 months, compared to silver’s 14 per cent and gold’s 9 per cent. But it’s difficult to quantify the level of investor interest in the PGMs and assess its importance in driving up their prices.
The GFMS consultancy says in its latest report on the industry* that, in contrast to the gold investment market, where data on bar hoarding, retail investment and holdings of the various exchange traded funds provide crucial information, “the universe for platinum and palladium is significantly more opaque.”
Most investment activity consists of purchases made by institutional investors such as hedge funds directly from holders of stocks such as Russian state entities. Those are rarely on public record.
If you ignore stock movements, and just look at primary supply – mined and recycled metal – relative to primary demand, palladium has been in heavy over-supply for years and platinum has moved from shortage into over-supply.
Platinum group metals: supportive demand
Yet despite such negative fundamentals, prices of PGMs have been rising for years, which suggests strongly supportive investment demand, especially for palladium.
GFMS says that although a primary surplus for platinum of 145,000 ounces emerged last year, “true growth in investment demand… was a good deal greater” than this relatively small figure of net movements into stocks suggests.
Although solid fundamentals specific to the metal have been “instrumental in generating buy-side interest from the investor community… a good part of the demand was related to bullish sentiment for the overall precious metals complex.”
However, “in contrast to gold, where smaller retail players and especially high net worth investors have been relatively active, such private investors have been largely absent” from the platinum market, where the buyers are institutions, particularly hedge funds, “with a short to medium term view.”
Platinum group metals: ETFs launched
This is likely to change with the imminent listing in Zurich and London of ETFs – exchange-traded certificates that give direct ownership of bullion, so making it easy for individual investors to buy into the metals.
The two investment banks that have just launched them reckon they should add 150,000 oz to demand over the next 12 months, but Peter Ryan, GFMS’s senior consultant, reckons they could lift demand by more than 250,000 oz this year, as the market for platinum remains extremely tight.
Investors remain the main propulsive force behind rising prices for all precious metals, but the arrival of ETFs for platinum and palladium should give an extra boost to their prices, as they did for gold, where ETF demand absorbed 8.4 million oz last year alone.
I see no reason to change my long-held view that you should hold about 10 per cent of a balanced investment portfolio in precious metals, with perhaps a quarter of your holdings in platinum.
* Platinum & Palladium Survey 2007. £275/$495 from GFMS Ltd. Email: info@gfms.co.uk
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