What's Driving Platinum, Palladium ETFs?

Source: Commodity Online, Tom Lydon  (2/26/10)

"What could put a dent in platinum and palladium's shine?"

Even before the platinum and palladium exchange traded funds (ETFs) came along this year, the metals were strongly in demand for uses in industry and jewelry. The new funds could help usher in a new climate of resilience in the metals' prices.

Investors are all over platinum these days; coupled with improving industrial demand and a tight mining supply, and it's a recipe for a potentially long-term uptrend:
  • South Africa's mines are responsible for 80% of the world's platinum output; margins are getting squeezed at some mines, and one solution could be to scale back production volumes.
  • Auto sales are still tepid, but much improved. Platinum is a key component in catalytic converters, which help reduce emissions.
  • ETF Securities' new ETFs are adding a new layer to demand for the metals; in just a few weeks, the funds have amassed more than $500 million in assets under management.
  • Platinum prices are up around 1% at $1,535 an ounce, with palladium 5% higher at $445 an ounce, well above 2009 lows of $920 and $180 respectively, says Matthew Curtain for The Wall Street Journal. (Why Platinum May Be the New Gold.)
What could put a dent in platinum and palladium's shine? Look out for a rise in interest rates, which could damage the appeal of zero-yielding assets, such as metals and ETFs. There are also large stockpiles of palladium in Russia, which can be released as needed to keep the markets in equilibrium.

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