When it comes to investing in precious metals, most
investors tend to focus on gold and silver. With gold in the midst of a
multi-year bull market, the yellow metal gets most of the media
attention. Headlines like "Gold to Hit $2000 an Ounce‚" and "Invest in
Gold to Cash in on US Dollar Demise‚" have appeared almost relentlessly
over the past couple of years.
But while gold has been the media darling, it's
actually one of the worst performing metals over the last year. Rising
gold prices have been less about economic fundamentals, such as rising
demand, and more about speculation. For most non-day trading investors,
the last thing that you want to do is invest in a market driven by
speculators. Before you know it, the speculators have moved on to some
other asset, sending the value of your investment plunging, while you
are left holding the proverbial bag, without even knowing what
There is no question that for investors looking for a hedge for
inflation or US dollar exposure, gold is a reasonable investment. But
is there a better alternative?
Best of Both Worlds
it be great if you could invest in a metal that provides the same
benefits as gold, like hedging inflation and currency exposure, but has
an increasing industrial demand as well? There may be an effective
solution for investors looking to get the best of both worlds. Platinum
is considered a precious metal‚ and also has recently seen surging
"Both platinum and palladium offer investors a unique
combination of leverage to the global economic recovery through the
rebound in global auto output, as well as the supportive attributes of
a precious metal," analysts at Deutsche Bank wrote in a 2010
commodities outlook report.
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struggling global economy the logical question is where this increased
demand for platinum is coming from. The answer: the auto industry.
While platinum has a number of industrial uses - it's found in
everything from jewelry to lab equipment to thermometers to electrodes
- its primary use is in catalytic converters for the automotive
industry. Catalytic converters allow complete combustion of unburned
hydrocarbons from exhaust into carbon dioxide and water vapor, making
it a critical component of any automobile.
While it may seem foolish to base an investment decision on an
industry where the well-known players appear to be on life support, one
look at the numbers will make you rethink your apprehension. Regarding
an uptick in the auto industry, the Deutsche Bank report said the
outlook for the supply-and-demand equation over the next two years
looks "increasingly favorable," and noted "a sharp rebound in global
vehicle production, auto-maker restocking and continued investment
demand driving demand" for the two metals.
In fact, Chinese vehicle sales were up a staggering 49% in
2009. Even if that number were to drop in 2010, the increase in sales
will still be a healthy jump from 2009 levels. It's also important to
note that just because some well-known auto manufacturers are in
serious trouble doesn't mean that the whole industry is going bankrupt.
There are plenty of well-run automakers, and there is evidence that
after 4 years of decline, new auto sales in the US have not only
started to stabilize, but to slowly increase.
Michael Johnson of the ETF Database says, "Platinum is one of
the world's rarest metals, with annual global supplies totaling only
about 6 million ounces, meaning that prices can be very volatile at
times. Nearly half of the global platinum supply is used by auto
manufacturers each year, establishing a strong relationship between
metal prices and the health of the auto industry."
It is a basic question of supply and demand. With a limited
global platinum supply and an apparent increase in demand, the
potential exists for platinum to continue to surge.
Precious metal investing is not for everyone and can be very
volatile. Speak with your financial professional to see whether an
investment in platinum would be appropriate for your portfolio.
Aaron Katsman is a licensed financial professional both in
the United States and Israel, and helps people who open investment
accounts in the United States. Securities are offered through Portfolio
Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC,
MSRB, NFA, SIFMA. For more information, call (02) 624-0995 or email
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