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March 06, 2008

Platinum and Palladium Revisited
by David Shvartsman

Platinum and palladium have been on fire the past couple months, as you probably know.

We've recently highlighted platinum's surge here with some brief article mentions, but it's been a while since we covered the platinum group metals (PGMs) at length. And since platinum and palladium are probably both due for a nice short-to-medium-term pullback, you may take this post as an intermediate-term top signal!

Back in April and May of 2007, we highlighted the launch of the new platinum and palladium ETFs brought out by ETF Securities and Swiss bank ZKB. Demand for the new commodity ETFs was strong right out of the gate, and the recent upward move in the PGMs has generated more interest in these products.

Still, no platinum ETFs have been introduced in the US, a situation which is probably due to the metal's extremely tight supply and expected lobbying by industrial users against such a product.

And its not just the industrial users who would be upset by increased investment buying. It seems that platinum and palladium producers were also none too excited about the added buying and selling pressures that would result from new ETFs being launched.

With platinum currently trading at $2174 an ounce, and palladium trading at $514 an ounce, platinum commands a 4.2:1 premium over its complementary white metal. This premium for platinum over palladium has widened from a ratio of about 3:1 back in April of 2006, when we last covered the price action of the PGMs in some depth.

At that time, noting the possibilities for increased use of palladium as a substitute metal in industrial and jewelry applications, I wondered if the price disparity between the two metals might narrow in the not-too-distant future. So far, this has not been the case, as platinum still surpasses palladium in price terms, four-to-one.

However, palladium has enjoyed a remarkable run up in recent months, and its near-parabolic move towards $600 an ounce has been a boon to investors who bought in when the metal was trading between the range of $300 and $400 an ounce.

And since the price spread between the two metals persists, speculators and investors continue to focus on the future substitution value of palladium.

But speculators who bought in recent days had to be nimble or face quick losses, as palladium and platinum prices suffered sharp drops Thursday (March 6, 2008) on news that South African mines had regained power following recent power shortages. It seems that after such a sharp rise, the metals were due for a correction.

For more on the platinum group metals, and possible vehicles for speculation and investment in platinum and palladium, mining shares, and ETFs, please see the following articles. And remember the risks involved in speculating, and chasing any hot trend.

"Metals action and notes on palladium" - Finance Trends Matter.

"Got platinum/palladium?" - Finance Trends Matter.

"Platinum, Palladium are hot" - Financial Post.

"Palladium stars as investors focus on future substitution" - Mineweb.

"ZKB palladium ETF beats target, platinum lags" - Reuters.

"Palladium: the other white metal" - Seeking Alpha.

"Palladium, Platinum, Gold, and Electricity" - Financial Sense Online.

David Shvartsman
Finance Trends Matter

Copyright © 2005-2009 David Shvartsman

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