PGMs: A Tale Of Two Demand Drivers

May 25, 2010

Platinum group metals offer much more than wedding rings and reduced auto emissions. But how has their increasing investment appeal affected the market?

 

May has been hard for investors in the platinum group metals (or PGM), a group that includes platinum and palladium, as well as lesser known metals like rhodium, ruthenium, osmium and iridium.

On Thursday, spot platinum dropped 4.5 percent to $1529/oz, while spot palladium had an even rougher day, dropping 7.2 percent to $424/oz. But Thursday was just the icing on the cake: Last week, spot platinum fell 11.7 percent, while palladium plummeted 21.1 percent:

PLAT and PALL; Jan - May 20, 2010

 

This drop comes after both metals had experienced huge gains since the beginning of 2010: Prior to last week's drop, platinum had risen 19 percent for the year, while palladium had risen over 35 percent.

What's behind the big pullback? FT.com quoted Anne-Laure Tremblay, a precious metals analyst at BNP Paribas, as stating that the metals "probably overshot relative to fundamentals in April and a correction in the price is not that surprising."

Also, there remains that little situation over in the eurozone; unease over Europe's financial health has caused virtually all potentially risky assets to dip. Monday saw a slight recovery, with platinum closing at $1527 and hitting $445 in New York, up 1.46 percent and 2.53 percent, respectively.

 

The ETF Effect

One reason behind the price increase earlier in the year was a jump in investment interest, driven by the launch of two new U.S. physically backed ETFs in January: the ETFS Physical Platinum ETF (NYSEArca: PPLT) and the ETFS Physical Palladium ETF (NYSEArca: PALL).

While both ETFs, which are trusts physically backed by their respective metals, are firsts of their kind in the States, they're just two of many such bullion-based funds that ETF Securities manages around the world. As of the week ending May 13, ETFS funds held 1 million ounces of platinum and 1.7 million ounces of palladium worldwide, according to FT.com.

But both platinum and palladium have fairly small annual supplies—5.92 million ounces and 7.1 million ounces, respectively. That means a large chunk of each metal's total supply (17 percent for platinum and 24 percent for palladium) is just sitting in a vault somewhere.

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