ptm
How New Palladium, Platinum ETFs Will Change Supply
and Demand
by: Michael Pollick
January 07, 2010 | about: PLG / PAL
The world is about to entertain two new investment vehicles that could have a profound effect on the prices of two very
rare and very necessary metals -- palladium and platinum.
Unlike gold, which we do not "need" for that many purposes, platinum and palladium not only make for pretty jewelry
but are essential to various chemical and electronic processes. Crucially, one or the other of these two metals must be
present as a catalyst in a catalytic converter for an internal combustion engine, whether diesel or gasoline powered.
To cut to the chase, two new ETFs will make it possible for the first time for U.S. investors from Joe Six-Pack to El
Magnifico Hedge Fund to buy and sell physical palladium or platinum bullion with the click of a mouse.
Both new ETFs will be traded on the NYSE and both are being marketed by the same company that has a major track
record with European versions of these funds and others, ETFS Securities. Roughly speaking, 5 to 10 percent of world
supply of each metal could be skimmed off the top of the market and salted away in vaults in the first year. We are
waiting for final SEC approval at the moment, and the backers are making ready to sell shares to the public.
Before this, palladium and platinum were available in the U.S. through purchase of physical bullion at places such as
Kitco.com, or through futures. With these ETFs -- as with the existing GLD and SLV ETFs -- you or I will be able to buy
and sell physical bullion with the click of a mouse, and without major storage or insurance costs.
The most common form for retail purchase is one-troy ounce legal tender coins minted by governments such as the
Royal Canadian Mint. At present, a platinum Maple, which is what the Canadians call their precious metal coins, retails
for
U.S.$1,667 and a palladium Maple goes for $467. The retail prices are 8-9 percent above the spot prices.
Before this, a U.S. trader could also buy one of two platinum ETNs. The way these work is that the fund acts as if it
owns platinum but does not really own it, just settles as if it did. There has been no ETN in the U.S. for palladium.
So these two new securities -- ETFS Palladium Trust and ETFS Platinum Trust -- really are a breakthrough for the still
huge, omnivorous U.S. market.Compared to gold and silver ETFs, the crucial difference in my view is that these two
new ETFs are dealing in metals which are six times more rare than gold.
Both of these precious metals have made sharp recoveries during the past year after falling apart with the general
market in 2008. I remain bullish on both metals. But rather than investing directly in either of the two new funds, I
choose to own stock and warrants in North American Palladium PAL/PDL.TO and Platinum Group Metals
PLG/PTM.TO.