Is The New Precious Metals ETF Worth Buying?

October 26, 2010

A new fund by ETF Securities lets investors own gold, silver platinum and palladium in one fell swoop. It's one ETF to own them all—but is it too good to be true?

 

Last week marked the launch of ETF Securities' Physical Precious Metal Basket of Shares (NYSE Arca: GLTR), a fund created to allow investors to obtain exposure to four precious metals in one go. To do this, 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium will back each share of the fund.

Given how stellar all the precious metals have performed as of late, the new fund sounds like a great deal. But is it?

Well, to understand that, first we must look at the metals themselves.

These days, the headlines analyze each up and down move in gold in excruciating detail—and for good reason: Gold is up 25 percent in the past 12 months. But it's not the only precious metal that is enjoying fabulous returns:

 

GOLD, PLAT, SILV, PALL - Normalized as of 10/22/2009

Platinum is the worst performer of the group, but even still, it's up almost 23 percent year-over-year. Silver has risen 31 percent, while palladium has jumped an astonishing 75 percent since this time last year.

 

Platinum

Let's look at platinum first. Platinum futures closed at $1,673 on Friday, up 11.5 percent since the beginning of the year, but not quite returning to their $1,731 highs, struck back on April 22.

Platinum prices are highly influenced by gold's moves, but increases in car sales, as well as general recoveries in both the stock market and jewelry sales, have helped rebuild demand for the metal.

On the supply side, a couple of strikes in South Africa have helped support prices upward. One strike at Northam Platinum had cut production to the tune of 1,000 ounces of metals a day (platinum, palladium, rhodium and gold) for 43 days. While the strike has since ended, the company expects it will take weeks to get the mine back to producing at full capacity. (Granted, Northam Platinum isn't anywhere near as large as other producers in the industry, but when the world's total annual supply of platinum is just 6 million ounces, any supply disruption will be felt.)

But increased supply could help pressure prices downward, too. For example, top platinum producer Anglo Platium remains on target to meet its production target of 2.5 million ounces this year. The company, a unit of Anglo American, expanded its production in the third quarter by 11 percent, in an attempt to take advantage of platinum's increasing prices.

Anglo Platium isn't the only one bumping production in response to rising prices; a number of South African mines are planning on increasing production in the next few years. This includes Anooraq Resources, a junior miner in the country, which expects to double production at one mine, and already has plans to start a new mine forecasted to produce 300,000-400,000 ounces each year. Anooraq already owns the third-largest platinum reserve in South Africa, most of which is, at this point, largely untouched.

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