The most popular precious metal, gold, has seen rough trading
to start 2013. As investors embrace risky assets in droves, this
hedge has fallen by the wayside leaving many investors to look at
other commodities for exposure in this climate.
Two increasingly popular choices are palladium and platinum,
white precious metals which are both dominated by South African
production (although a big chunk of palladium does come from
Russia). While this hasn't been much of an issue in the past, the
increasingly onerous government presence in South Africa is
beginning to weigh on miners in the region.
In fact, Cynthia Carroll, the CEO of Anglo American, the
world's largest platinum producer, recently stated that the '
industry is in a crisis
' after the firm posted a $753 million loss for fiscal 2012. The
company largely blamed an inability to shutdown loss-generating
mines on the South African government, which has pushed to keep
them open to improve the jobs situation in the nation.
However, despite the government's resistance, costs in the
country have risen while platinum prices haven't kept up.
According to Carroll
, labor costs have increased by 8% in the past two years, while
energy costs have surged by 19%, meanwhile, platinum was down
about 3% in the time frame (read
Invest Like Morgan Stanley with These 5 Commodity
The problem hasn't been limited to Anglo American though, so
it is hard to blame mismanagement for this quandary. Some say
more than half
the industry in South Africa is breaking even or posting a loss,
suggesting that the trend isn't very good at all for the
producers in the country.
Yet given that platinum accounts for 5.5% of GDP in South
Africa, it seems likely that the national government will not be
too happy about more mine closures to say the least. This could
keep miners under pressure across the country and it may derail
production levels in the near term.
This situation has helped to boost platinum prices as a
smaller supply is generally bullish for commodities.
Additionally, since palladium often occurs alongside platinum,
many of the concerns over platinum are building over its cousin
palladium as well.
Yet if one looks beyond the supply situation, the demand
picture could also be improving. Many economies have entered a
new bullish phase around the globe so this could also be adding
to platinum and palladium gains this year (read
Why You Don't Need Both the Platinum and
This is because, unlike gold, platinum and palladium are
heavily focused on industrial uses so they often take their cues
from the broad economy. As the global economic situation has
picked up and as car sales-a key driver of platinum and palladium
due to catalytic converters-have surged, there is some
significant hope for platinum and palladium prices in 2013 (read
Strong Auto Sales: Good News for Metal ETFs?
If these two trends of increased demand and reduced supply
hold, it could be a very good year for platinum and palladium
investors. This could be especially true if investors compare
returns to gold, a metal that many believe may be facing some
weakness, given the improving economic outlook.
For this reason, it could be time to cycle back into these
high beta metals for the time being. While bullion purchases at a
local coin dealership is one way to go, investors can also
These funds still invest in platinum and palladium but do so
in a much more liquid way. Instead of having to deal with
sometimes massive premiums and discounts, shipping and storage,
investors now just have to sit back and click a button. For those
interested, we have highlighted two of the most popular ETFs that
invest in the bullion of these metals, either of which could be
interesting plays this year:
For a platinum investment, there is the
ETF Securities Physical Platinum Shares (
. This ETF charges investors 60 basis points a year, holding bars
of platinum in a secure vault in Europe.
The fund is also a pretty liquid option, having volume of
about 75,000 shares a day. In addition, it does have a rather
large asset base with over $870 million in total AUM in the
Meanwhile, in the palladium world there is the
ETF Securities Physical Palladium Shares (
. The fund also charges 60 basis points a year in fees and holds
bars of its metal in a secure vault in Europe.
Unsurprisingly, given that palladium is relatively unknown,
the product does have less in assets than its platinum
counterpart, possessing about $550 million. However, thanks in
part to its more volatile nature, it does see a bit more in
volume in an average trading session (read
Palladium ETFs to Rally in 2013?
Both PALL and PPLT are currently sporting a Zacks ETF Rank of
2 or 'Buy'. This means that we are expecting good things out of
both over the coming year.
Given the current supply issues in one of the key markets for
both metals this could certainly be the case. If that wasn't
enough, demand could also surge, suggesting that 2013 could be a
solid year for both the palladium and platinum ETFs for investors
seeking a new precious metal play this year.
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Author is long palladium and gold bullion.
SPDR-GOLD TRUST (GLD): ETF Research Reports
ETFS-PALLADIUM (PALL): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
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