page 24
Platinum 2009 Interim Review
The launch of two sets of
physically-backed
Exchange
Traded Funds (ETFs) in Europe
in 2007 injected some vigour into
the physical investment market
for platinum and palladium.
While many
larger
investors
had already been able to gain
exposure to the prices of these
metals, these funds have allowed
others to invest, from private
individuals to pension funds.
The ETFs which were launched
were entirely backed with physical
metal in that each investment in a
new share in the ETF was balanced
by the purchase of the appropriate
amount of either platinum or
palladium by
the ETF. While
investors maintain these positions,
this metal is held off the market,
leading to physical demand (in
contrast to the leveraged and short
funds later launched which have no
impact on the physical market).
With more than two years
of history since the launch of
these funds, it is now possible to
understand ETF investor behaviour
to some extent. The Swiss-based
fund appears to have attracted a
buy-and-hold type investor looking
for longer term profits. Indeed one
of the larger initial investors in the
Swiss funds was a pension fund.
By contrast, in London, positions
appear to be significantly more
fluid with investors speculating on
shorter term price movements.
Although these investors may be
willing to hold metal for the longer
term, this has not been seen to
date. What has been seen is a rapid
increase in total metal holdings at
times of rising prices and weighty
sales as the price falls or as the
value of other investments has
fallen, necessitating the liquidation
of these positions to cover losses
incurred elsewhere. Our relatively
positive outlook for the prices of
both metals in 2010 suggests that
net investment flows into the ETFs
could again be substantial.
In April 2009, the launch of a
US-based physically-backed fund
was proposed. This is currently in
the process of attempting to gain
approval from the relevant licensing
authority. In