-- Posted Tuesday, 15 May 2007 | Digg This Article
Much like gold and silver in the last few years around the globe, platinum and palladium ETFs are starting to hit the market in Europe. Once these ETFs get up and running in the Euro sector, they will begin socking away some metal that could begin eating away at the surplus expected this year according to Johnson Matthey.
The interesting thing for clients to consider is how to play this in both metals. There are only two options currently, the handful of mining companies or physical metal (We don't believe in advising investors to try the options or forwards markets in any commodity, that's the playground for professional investors, hedge funds and banks).
Neither platinum or palladium have many mining stocks to chose from and those that are out there are notorious for producing uneven results over consecutive quarters. Case in point, Stillwater Mining Co. (SWC) the only US domiciled platinum and palladium miner. The stock was over $30 per share when platinum was near $400 per ounce seven years ago. Today it trades at $12 per share with platinum prices having more than tripled to $1,300 per ounce and trades at a ridiculous 180 to 1 price to earnings ratio. Some of that $30 stock price is due to the spike in palladium prices that took place in the late 90s and into the early party of 2000-20001, but a quick review of recent quarterlies shows this company still can't make a regular profit.
The odds of a platinum or palladium ETF ever emerging in North American markets is extremely slim. This is due to the fact that not only are platinum and palladium already very thin markets to begin with, (for example, annual gold production is about 78 million ounces, annual platinum production is less than 7 million ounces), but the plat/pall lobby in the US will be much stronger against ETFs than they were in Europe.
In the US, major end users of plat/pall are the car makers.
If the car makers believe there is another major increase for input costs that that can potentially keep off their books by lobbying against the ETFs, they'll do so in a heartbeat. Unlike the SUA (Silver Users Association) who lobbied unsuccessfully and half-heartedly against the silver ETFs last year making a hollow argument about supply issues, the car makers and associated lobbyists will have far more umph behind their efforts.
The way for clients to play this coming boom in both metals is via the physical market in the United States, if for no other reason than that there aren't any other avenues for them to invest in at present unless they invest in futures contracts. Should the possibility of a plat/pall ETF ever materialize in the US, the price will react well before the ETF officially becomes available much like the silver market when whispers began of the incoming SLV ETF. The key for clients to enjoy profitability is to take advantage of that before hand via the physical market.
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ETFs 'to hit surplus' 15th May 2007
Johnson Matthey's prediction of a surplus in the platinum market over the course of 2007 is likely to be restricted by the arrival of exchange-traded funds (ETFs).
Jeremy Coombes, General Manager of Marketing and Publications at Johnson Matthey, has told Reuters that the ETFs being established in platinum will eat into the expected surplus, therefore keeping demand tight and maintaining relatively high prices for the metal.
Mr Coombes warned that the impact of more ETFs could cause significant problems for the platinum market and result in platinum prices reaching new highs.
"If we see any other ETF launched, especially if we see a dollar-based ETF or one based in the US, then the potential is for that to go further than just absorbing the surplus, maybe increasing tightness in the market," he explained.
This view was supported by Bill Sandford, Director of Johnson Matthey's Precious Metals Products Division, who commented: "If the whole investment market was to become extremely large, then it becomes a more difficult job for the producers to plan their future mining."
Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit www.BlanchardGold.com
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