Gold Vs Platinum: ETF Prices Diverge

The precious metals currently have very different drivers.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

This year has not been a pretty one for precious metals. Sour sentiment for commodities in general, as well as weak supply and demand fundamentals for the sector in particular, has given investors little reason to buy in 2015.

Gold made headlines back in July when prices briefly tumbled as low as $1,072 for the first time in five years, but the yellow metal has since stabilized, rising about $70 from that point.

Silver has followed suit, falling to a six-year low around $14, before rebounding to last trade around the $15 level.

The SPDR Gold Trust (GLD | A-100) and the iShares Silver Trust (SLV | A-99), which hold physical gold and silver, respectively, are down 2.7 percent and 4.2 percent on the year.


Uneven Performance
While certainly nothing to cheer about, given the bloodbath in commodities, gold and silver have held up relatively well this year. The same can't be said for the other precious metal duo: platinum and palladium.

The ETFS Physical Platinum ETF (PPLT | A-100) is down a whopping 21.3 percent year-to-date, and the ETFS Physical Palladium ETF (PALL | A-100) is down 18.2 percent in that same period.

Clearly, 2015 has been a much lousier year for platinum and palladium than it has for gold and silver.


YTD Returns For GLD, SLV, PPLT, PALL

Alternative Currency

For gold (and to a lesser extent, silver), the primary driver of demand in recent years was from investors buying to hedge against various economic risks. The big one of these risks was inflation, which was expected to rise rapidly in light of the Federal Reserve's massive quantitative easing programs during the 2008 to 2014 period.


When in 2013 it became increasingly clear that runaway inflation wasn't coming, gold tanked. GLD lost about 28.3 of its value in that year and hasn't done much since, falling 2.2 percent in 2014 and another 2.7 percent so far this year.

Despite the threat of Federal Reserve interest-rate hikes, which are widely considered to be bearish for gold, prices haven't fallen much since 2013. Rapid currency depreciation, especially in emerging markets, has boosted the appeal of what some consider an alternative currency and store of value.

Autocatalysts

Meanwhile, the story for platinum and palladium is much different. While there are other uses, such as jewelry in the case of platinum, the two are primarily used as autocatalysts.

Autocatalysts reduce vehicle pollution and are often mandated by governments. For platinum, 40 percent of total demand comes from this segment; in palladium's case, it accounts for 80 percent of total demand.

In recent years, surging auto sales globally lent support to prices for platinum and palladium. But now that trend is reversing as the economic slowdown in China takes a toll. Sales of passenger cars in the world's largest auto market hit their lowest point in two years in July.

Volkswagen Scandal

Adding a one-two punch to platinum in particular were revelations last week that German car manufacturer Volkswagen misled U.S. environmental regulators by installing illegal software in its vehicles.

The software prompted some of the company's diesel vehicles to comply with emissions regulations during testing conditions, but to not comply during normal driving conditions (to the benefit of performance and fuel economy).

The scandal shocked the automotive world and is a big black eye for not just the company, but diesel vehicles in general. As the autocatalyst mainly used in diesel vehicles, platinum is seen as the biggest loser from the scandal.

At the same time, palladium, which is primarily used in gasoline vehicles, is seen as a potential winner if sales of those vehicles tick up on the margin.

Indeed, the performance in the two metals since the scandal broke has been quite stark, with palladium rising 9.5 percent and platinum falling by 3.3 percent.


Returns In PPLT, PALL Since Sept. 18

The Bottom Line

Recent price action aside, the most significant driver of platinum and palladium going forward will be auto sales in China and around the world.

That's in contrast to gold and silver, which may take their cues from interest rates, currency and inflation movements.

They may be all considered precious metals, but gold, silver, platinum and palladium have very different drivers that investors should be aware of.


Contact Sumit Roy [email protected].

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.