By Noble Drakoln

Platinum was a part of Native American culture before Columbus arrived in the New World. In 1557, Julius Caesar Scaliger writes about the metal, referencing the platinum mines of Panama and Mexico and the difficulty of melting the metal based on the technology of the times. Europeans realized early on that platinum was more precious than gold. King Louis XV of France acknowledged platinum's rarity and declared it the only metal fit for a king.

During the 19th century, platinum was very difficult to metalsmith. It was often mixed with iridium in order to mold it into jewelry. Around the turn of the 20th century, Russia made several significant platinum deposit discoveries and began to produce 90% of the world's platinum. At the same time, advances in metalsmithing made the use of pure platinum more common.

Platinum's metallic properties make it highly attractive in a variety of commercial and industrial applications. It has a high resistance to temperature and does not oxidize in air, although it is corroded by halogens, cyanides, sulfur and caustic alkalis. What's more, it is also non-reactive to chemical attack and has excellent electrical properties. (All that glitters isn't gold. Find out how to get started on your treasure hunt in A Beginner's Guide To Precious Metals.)

A sample commodity futures contract for platinum is shown in the following table.

Platinum Contract Specifications
Ticker Symbol Open Outcry: PL (NYMEX)
CME Globex Electronic: EPL (NYMEX)
Contract Size 50 troy ounces
Deliverable Grades In fulfillment of each contract, the seller must deliver 50 troy ounces (±7%) of platinum not less than .9995 fineness, with no single piece weighing less than 10 ounces. Each contract unit may consist of ingots or plates, each incised with the lot or bar number, weight, grade, name, or logo of the assayer, and symbol identifying the metal.
Contract Months All months
Trading Hours NYMEX Open Outcry: Monday-Friday
CME Globex Electronic: Sunday-Friday 6
Last Trading Day Third to last business day of the contract month. Trading terminates at the close of business on the third business day prior to the end of the delivery month.
Last Delivery Day Last business day of the contract month
Price Quote U.S. dollars and cents per troy ounce
Tick Size NYMEX: 10 cents per troy ounce ($5 per contract)
Daily Price Limit
(Not applicable in electronic markets)
1. Futures: $25 per troy ounce ($1,250 per contract)
2. There is no maximum daily commodity trading limit during the current delivery month and the three business days preceding it.
3. If the settlement price reaches the maximum daily limit for two consecutive days in any of the outer months, the expanded daily limit schedule will go into effect.
4. The maximum expanded daily limit is $50 per troy ounce ($2,500 per contract)

Understanding Platinum Contracts
Like every commodity, platinum has its own ticker symbol, contract value and margin requirements. To successfully trade a commodity, you must be aware of these key components and understand how to use them to calculate your potential profits and loss.

For instance, if you choose to buy or sell a platinum futures contract, you will see a ticker tape handle that looks like this:

PL8J @ 1950

This is just like saying "Platinum (PL) 2008 (8) April (J) at $1950.00/ounce (1950.0)." A trader buys or sells a platinum contract according to this type of quotation.

Depending on the quoted price, the value of a commodities contract is based on the current price of the market multiplied by the actual value of the contract itself. In this instance, the platinum contract equals the equivalent of 50 troy ounces multiplied by our hypothetical price of $1,950, as in:

$1950 x 50 troy ounces = $97,500

Commodities are traded based on margin, and the margin changes based on market volatility and the current face value of the contract. To trade a platinum contract on NYMEX requires a margin of $9,450, which is approximately 9% of the face value.

Calculating a Change in Price
Because commodity contracts are customized, every price movement has its own distinct value. In a platinum contract, a 10-cent move is equal to $5. When determining platinum profit and loss figures, you calculate the difference between the contract price and the exit price, and then multiply the result by $5. For example, if prices move from $1,950 to $2,000.10, you multiply the difference, which is $50.10, by $5 to yield a contract value change of $2,505.

- Buy Sell Total Value
Platinum Contract Price (10 cent move = $5) $1,950 $2,000.10 $50.10/501 cents or $2,505


Platinum Exchanges
The futures contract for platinum is traded at the New York Mercantile Exchange (NYMEX) through its Commodity Exchange (COMEX) division via open-outcry. It is also traded electronically through the Chicago Board of Trade (eCBOT) and Tokyo Commodity Exchange (TOCOM). (Learn what to watch out for to ensure your "sure thing" isn't another Bre-X in Strike Gold With Junior Mining.)

Facts About Production
Platinum is one of the most precious metals in the world. Large deposits of platinum can be found on the moon and in meteorites, but finding it on earth is more difficult. Of all of the platinum that has been found on earth, 80% has been located in South Africa, 11% in Russia and 6% in North America. Thirty times more rare than gold, platinum has an annual production of approximately five million troy ounces a year compared to gold's 82 million troy ounces per year and silver's 547 million troy ounces per year.

Platinum's special properties put it in large demand in diverse industries. From jewelry to cars to health sciences and more, this versatile metal plays a vital role in our everyday lives. For example, cars (which still operate with catalytic converters), represent 29% of platinum's usage. The balance of platinum is used in jewelry, chemical refinement and in high-tech electronics.

Factors That Influence Platinum's Price
The price of plantinum is influenced by the following factors:
  • About 51% of platinum finds it way into jewelry. This disproportionate demand leaves platinum exposed to changing tastes and consumer demands. Any changes in buying habits, whether good or bad, could potentially lead to quick drops or jumps in platinum prices.
  • Platinum is an essential component in catalytic converters and is used as a catalyst in fuel cells. Fuel-cell scientists are working to reduce the amount of platinum required to operate fuel cell devices. With major industrial countries such as the U.S. advocating for reduced reliance on oil and increased green energy consumption, the impact on platinum usage has yet to be truly felt.
  • Platinum has found a place in the fight against cancer. Platinum-dependent compounds are used in various forms of chemotherapy. Despite current adverse side-effects on kidneys and hearing, platinum-based chemotherapy shows a promising future as a form of treatment.
  • Platinum is gaining ground in the use of archival photography, thermometers, electrodes, crucibles for high temperature melting, and various small electronic devices.
Conclusion
Platinum is one of the rarest metals on earth, yet it can be found in a myriad of general consumer goods. This has led to wild fluctuations in supply and demand, which in turn has caused platinum's price to be quite volatile. Of course, this volatility only excites traders even more, and creates huge opportunities for profit (and loss).


Next: Commodities: Pork Bellies »



comments powered by Disqus
Trading Center