Could Platinum Be Better Than Gold?

By Aaron Levitt | September 27, 2011 AAA

As the world continues to be awash in fiscal and economic uncertainty, investors both big and small have flocked to gold. Funds like the ETFS Physical Swiss Gold Shares (Nasdaq:SGOL) have seen their assets under management swell, and prices for the yellow metal are up about 27% so far in 2011. With no end in sight to the financial uncertainty, many analysts continue to revise their price targets for gold higher and higher. However, in all this gold hysteria, a strange thing has occurred. Precious metal platinum, which has traded much higher than gold for the last 20 or so years, has now reached parity. For investors looking for value in the precious metals space, now could be a good time to strike.

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A Platinum Play
Historically, platinum has been the "money" metal usually trading for a wide premium over gold. Since 1997, the white metal has often cost 50-100% more than gold due to its scarcity of supply and sheer expense in mining it. Even though the $1.9 trillion gold market dwarfs the $251 billion platinum market, platinum is nearly 30 times rarer than gold, and many analysts consider it more precious. Just how precious? Some say all the platinum ever mined will fit neatly within a 25-foot cube.

The last time gold saw its price above platinum's was when investment bank Lehman Brothers filed for bankruptcy in September 2008. When the world was on the verge of financial collapse, investors back then sought shelter in gold. As the smoke cleared, prices for the safe-haven metal fell by the end of 2008, and platinum rebounded during 2009. Gold currently trades at 80-100% of platinum's price.

The real future growth engine for platinum will come from its industrial uses. Like silver, platinum blurs the line between industrial and precious metal and has seen its demand skyrocket since the mid-1990s. Demand for platinum grew by 16% in 2010, driven by a 48% surge in industrial demand. Platinum is a critical component of the automobile industry, finding its way into catalytic converters. Last year, metal demand for catalytic converters increased 43%. In addition, platinum is used in a variety of high-tech industries including LCD monitors, hard disk drives, batteries and electrodes. Analysts expect worldwide platinum demand to begin outstripping supply over the next five years.

Betting on the Other White Metal
While gold seems to be benefiting from its safe-haven status, investors may find the long-term growth catalysts in platinum more to their liking. The current parity situation relative to gold prices can be used as a great time to add the metal to a portfolio.

Like the SPDR Gold Shares (NYSE:GLD), the ETFS Physical Platinum Shares (NYSE:PPLT) allows investors to track the price of the white metal. The ETF currently trades near its 52-week low and carries an expense ratio of 0.60%. In addition, investors can use both the iPath Dow Jones-UBS Platinum Trust ETN (NYSE:PGM) and the E-TRACS UBS Long Platinum ETN (NYSE:PTM) to gain exposure to the metal. These exchange-traded notes both rely on futures contracts to achieve their objectives as opposed to physically holding platinum.

Betting on Platinum Miners
Like gold, investors can gain additional leverage by betting on platinum miners. The First Trust ISE Global Platinum Index (Nasdaq:PLTM) tracks 24 different miners of platinum group metals. However, the ETF is thinly traded. By the same token Stillwater Mining (NYSE:SWC), with its recent purchase of Peregrine metals, has the company moving into copper and gold production. For a pure-play, Anglo Platinum (OTCBB:AGPPY) supplies nearly 40% of the world's platinum at a profit margin of 24%. Anglo Platinum is also a subsidiary of mining giant Anglo American (OTCBB:AAUKY). The diversified miner holds an 80% stake in Anglo Platinum.

The Bottom Line
With its recent surge due to all the uncertainty in the world, gold is getting all the investor attention. However, as gold has risen and reached parity with platinum, the white metal could be one of the best values in the precious metals sector. Offering investors some real long-term upside as its industrial demand continues to grow, now is the time to add the metal. The previous platinum picks, along with Impala Platinum Holdings, (OTCBB:IMPUY) make ideal selections. (For additional reading, see A Beginner's Guide To Precious Metals.)

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