With gold prices selling-off pretty hard over the last few weeks, investors in the precious metal space have been shaken to the core. After all, one of the appeals of investing in gold has been its safe-haven status. Yet, with economic conditions beginning to improve across much of world, investors have been dumping gold in spades and loading up on equities. As such, popular gold funds like the SPDR Gold Shares (NYSE:GLD) have been losing assets at rapid pace.
The gold price drop has affected other metals within the precious category as well. For example, platinum shed around 10% at its peak in just three days.
However, platinum’s investment merits are much different than its yellow twin. Functioning as both a precious and industrial metal, “rich man's” gold could be a better buy in the new economic environment.
Shortages Among Rising Demand
Despite the recent price drop, there’s plenty to be bullish about when it comes to rising platinum prices. Aside from its precious metal moniker, the platinum group metals (PGM) is more about industrial than just being a store of value. The PGM's are a critical component of the automobile industry, finding their way into catalytic converters to control emissions. In addition, platinum is used in a variety of high-tech industries including LCD monitors, hard disk drives, batteries and electrodes. Meanwhile, platinum is still used heavily as a jewelry source and has gain prominence as an investment metal- just like gold. Overall, demand for the platinum metal continues to rise across both the industrial and precious metal fronts.
At the same time, supplies of platinum continue to drop.
Roughly 67% of platinum’s supplies come from South Africa, while Russia comes in second. Both of these nations are seeing big issues when it comes to the PGMs. First, much of Russia’s contributions to the platinum market have come from Cold War-era stockpiles. However, those are nearly empty and the country has little to no new mines coming online in the foreseeable future.
On the flipside, South Africa has been plagued by various production issues- including rising equipment & energy costs, high taxes, and worker strikes. According to Johnson Matthey, about 5.8 million ounces of platinum were produced in 2012. The 10% decrease versus 2011’s production was squarely blamed for South Africa’s continued woes.
Rising demand in the face falling supplies sets up higher price situation for platinum group metals.
Betting on the Other White Metal
Given all the long term industrial growth catalysts in platinum, along with the precious metal aspect, investors may want to choose it over gold for their portfolios. The current low-price relative to the future supply and demand constraints could be used as a great time to add the metal to a portfolio. The ETFS Physical Platinum Shares (NYSE:PPLT) could be the best way to do just that. Like the previously mentioned SPDR Gold Shares, the ETF holds physical bullion and allow investors to directly track the price of platinum. PPLT funds charge 0.60% in expenses and sits closer to its 52-week low than high.
Additionally, both the UBS E-TRACS Long Platinum ETN (NYSE:PTM) and Sprott Physical Platinum and Palladium Trust (NYSE:SPPP) can be used to bet directly on the price of the metal. As a closed-end fund, Sprott is currently trading at 1.6% discount to net asset value. That allows investors to buy platinum at an even bigger discount.
As with the rest of the precious metals space, investors can gain additional leverage by betting on the miners of the PGM. Stillwater Mining (NYSE:SWC) offer a chance to participate in the growth of the domestic mining sector of the platinum metals group. For a broader bet, the First Trust ISE Global Platinum Index (Nasdaq:PLTM) can be used. The fund tracks 19 different miners including giants like South Africa’s Anglo American Platinum (OTCBB:AGPPY) and Impala Platinum Holdings (OTCBB:IMPUY). PLTM charges 0.70% in expenses, which is pretty cheap considering the bulk of its holdings are emerging market stocks. However, the fund is pretty thinly traded, so using limit orders are required.
The Bottom Line
The recent rout in gold prices has affected the rest of the precious metals space as well. However, unlike gold, platinum is benefiting from long term industrial demand as well as constrained supplies. For investors, the white metal could be their best bet in the precious metals sector. The previous picks, along with the iPath DJ-UBS Platinum ETN (NYSE:PGM), make ideal ways to play platinum’s long term gains.
At the time of writing, Aaron Levitt did not own any shares in any of the companies mentioned in this article.
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