Platinum is difficult to buy and keep physically. However, investors can buy exchange-traded funds (ETFs) that specialize in the commodity. In addition to being a rare precious metal, there is great demand because it is used in car parts and electrical circuitry and even has some medical uses. Of course, platinum jewelry is also popular.

Platinum has been experiencing a price decline in recent years, but several events are expected to boost the metal's value in the near future. Platinum mine output has been lower from mine closings and decreased investment which has limited supply. If demand continues to be strong, the imbalance between supply in the market and demand could mean a rise in price for the precious metal. Analysts expect to keep a close watch on platinum as it competes for use with palladium in automobiles and electric cars. India and China are also reportedly increasing demand for platinum jewelry. Meanwhile, industrial sectors such as petroleum and glass are projecting increased usage.

Already, a number of platinum ETFs have started to benefit, rising in the first month of 2018 after stalling through most of 2017. We have selected the top three platinum ETFs based on the performance historically and the outlook for 2018. Incremental demand changes could generate larger gains, specifically for investors watching market trends.

Note: Data on the funds is as of January 24, 2018.

ETFS Physical Platinum Shares (PPLT)

  • Avg. volume: 60,220
  • Net assets: $565.48 million
  • Dividend yield: N/A
  • YTD return: 9.51%
  • Expense ratio: 0.60%
  • Price: $96.88

PPLT is the strongest choice for gaining exposure to the price of physical platinum. Buying shares in this ETF gives the investor nearly the same return as actual platinum would, minus fund expenses. Note that the expense ratio is 0.60%.

Investors tend to use PPLT to avoid exposure to the futures market while gaining exposure to platinum. The fund buys and holds platinum bars and stores them in vaults. It does not pay a dividend because it only holds platinum bullion.

ETRACS CMCI Long Platinum Total Return ETN (PTM)

  • Avg. volume: 2,840
  • Net assets: $10.47 million
  • Dividend yield: N/A
  • YTD return: 9.35%
  • Expense ratio: 0.65%
  • Price: $9.30

PTM is actually an exchange-traded note (ETN) that gives investors exposure to the metal's futures market. It attempts to mimic the UBS Bloomberg CMCI Platinum Total Return Index. The futures contracts have a maturity of three months. PTM holds a basket of futures contracts with varying expiration months to mitigate risk.

In 2017, the fund only returned 0.53%, but so far in January it's up more than 9%. Note that an ETN is a debt security, so anyone interested in this fund should examine the creditworthiness of the entity issuing the note. 

iPath Bloomberg Platinum Subindex Total Return ETN (PGM)

  • Avg. volume: 1,172
  • Net assets: $5.09 million
  • Dividend yield: N/A
  • YTD return: 10.83%
  • Expense ratio: 0.75%
  • Price: $20.88

PGM offers a different approach to the platinum futures market. It tracks the Bloomberg Platinum Sub-Index Total Return. This index holds a futures contract on platinum in the nearest contract month. It may also hold U.S. Treasury bills.

In 2017, the fund lost 1.13%,but so far in January 2018, it's up more than 10%.

The Bottom Line

PGM and PTM do not create new shares, primarily because they are ETNs. This can lead to overvaluation of these two entities. Creating new shares tends to reduce the price of an ETF, but since ETNs seldom issue new shares, there are no new issues to counter the rise in share prices. However, investors who are interested in platinum can buy existing shares of these two ETNs. PPLT is an actual ETF with numerous shares available.

Overall, opportunities for platinum are highly dependent on market trends. Commercially and as a potential safe haven it has the potential to increase in value through greater consumer demand. Industrial uses are also a highly sensitive factor, especially as manufacturing in the automotive industry advances and new developments occur with electric vehicles. Buying into platinum is speculative, therefore investors should allocate accordingly and expect to watch the market consistently to take advantage of potential gains.

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