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Platinum Hits 6-Year Highs: ETFs to Tap the Rally

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Precious and industrial metals are riding high lately as wider COVID-19 vaccination distribution and hopes of more stimulus renewed optimism for speedy economic recovery that has brightened the demand outlook. The weakness in dollar also lent support to the metals.

While gold and silver remain investor favorites, the white metal – platinum – is gaining increased traction of late. In fact, platinum rallied to its highest level in more than six years to above $1200 per ounce with analysts predicting more upside in the coming months given increasing demand and tightening supply conditions (read: Silver Spikes to 8-Year High of $30: ETFs to Ride the Rally).

UBS Global Wealth Management strategists project platinum to rise to $1,250 per ounce by the end of this year while Citi Research analyst expects platinum prices to “grind higher to $1,300 an ounce,” on a rebound in industrial and investment demand.

Demand on Rise

The automotive industry, mainly catalytic converters designed to limit greenhouse gases from exhaust fumes, is a big driver of demand in the platinum market, accounting for nearly 40%. Pick-up in global economic growth, stricter emissions rules as well as surging auto sales globally will continue to propel demand for the metal. The metal will also be supported by potential demand for platinum-based fuel cell stacks as well as increased loadings, particularly for diesel vehicles.

“Platinum's share of autocatalyst demand will begin to increase this year after a 15-year decline, driven mostly by higher demand from heavy-duty Chinese vehicles although a recovery in car production generally will boost demand for all platinum-group metals”, per Johnson Matthey.

About 35% of total metal demand comes from jewelry whereas demand from industrial applications accounts for 20%. Jewelry demand is expected to remain healthy due to platinum's hefty discount to gold while industrial demand will also pick up with improving economy. A greater focus from policymakers on renewable energy and decarbonization in 2021 may also drive silver price higher. According to UBS, more than 50% of silver used in industrial applications is linked to solar panels and electronics.

The rest of the demand is driven by investments, which is expected to surge this year as investors have turned to the precious metal as a store of wealth against the potential inflationary pressure due to highly accommodative monetary and fiscal policies around the world (read: TIPS ETFs to Buy on Growing Inflation).

Supply on Deficit

Global platinum saw a supply deficit of 390,000 ounces in 2020, as “demand continued to modestly outpace new supply”, according to the latest report from Johnson Matthey. The deficit widened from 301,000 ounces in 2019 and from a surplus of 265,000 ounces in 2018. The platinum market is expected to see the third consecutive annual deficit in 2021 with Ross Norman, chief executive officer of Metals Daily, estimating that demand may outpace supply by about 240,000 ounces this year.

According to the World Platinum Investment Council, ongoing disruption at a key South African refinery will likely keep the market in deficit this year.

How to Play?

Investors thinking to tap the deficit metal market along with rising demand could find any of the following three ETFs an intriguing choice. The trio has a Zacks ETF Rank #3 (Hold).

Aberdeen Standard Physical Platinum Shares ETF (PPLT - Free Report)

The fund seeks to match the price of platinum. It has amassed $1.4 billion in its asset base and trades in good volume of about 186,000 shares a day. The fund charges 60 bps in annual fees.

GraniteShares Platinum Trust (PLTM - Free Report)

This ETF also tracks the performance of the price of platinum and is physically-backed in a vault domiciled in London. It has AUM of $25.5 million and charges 50 bps in annual fees. The fund trades in average daily volume of 82,000 shares (see: all the Precious Metal ETFs here).

iPath Series B Bloomberg Platinum Subindex Total Return ETN (PGM - Free Report)

With AUM of $5.7 million, this fund follows the Bloomberg Platinum Subindex Total Return, which reflects the returns that are potentially available through an unleveraged investment in the futures contracts on platinum. It charges 75 bps in annual fees and trades in a paltry volume of under 1,000 shares on average.

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