But while gold has been the media darling, it'sactually one of the worst performing metals over the last year. Risinggold prices have been less about economic fundamentals, such as risingdemand, and more about speculation. For most non-day trading investors,the last thing that you want to do is invest in a market driven byspeculators. Before you know it, the speculators have moved on to someother asset, sending the value of your investment plunging, while youare left holding the proverbial bag, without even knowing whathappened.
There is no question that for investors looking for a hedge forinflation or US dollar exposure, gold is a reasonable investment. Butis there a better alternative?
Best of Both Worlds
Wouldn'tit be great if you could invest in a metal that provides the samebenefits as gold, like hedging inflation and currency exposure, but hasan increasing industrial demand as well? There may be an effectivesolution for investors looking to get the best of both worlds. Platinumis considered a precious metal‚ and also has recently seen surgingindustrial demand.
"Both platinum and palladium offer investors a uniquecombination of leverage to the global economic recovery through therebound in global auto output, as well as the supportive attributes ofa precious metal," analysts at Deutsche Bank wrote in a 2010commodities outlook report.
With astruggling global economy the logical question is where this increaseddemand for platinum is coming from. The answer: the auto industry.While platinum has a number of industrial uses - it's found ineverything from jewelry to lab equipment to thermometers to electrodes- its primary use is in catalytic converters for the automotiveindustry. Catalytic converters allow complete combustion of unburnedhydrocarbons from exhaust into carbon dioxide and water vapor, makingit a critical component of any automobile. While it may seem foolish to base an investment decision on anindustry where the well-known players appear to be on life support, onelook at the numbers will make you rethink your apprehension. Regardingan uptick in the auto industry, the Deutsche Bank report said theoutlook for the supply-and-demand equation over the next two yearslooks "increasingly favorable," and noted "a sharp rebound in globalvehicle production, auto-maker restocking and continued investmentdemand driving demand" for the two metals. In fact, Chinese vehicle sales were up a staggering 49% in2009. Even if that number were to drop in 2010, the increase in saleswill still be a healthy jump from 2009 levels. It's also important tonote that just because some well-known auto manufacturers are inserious trouble doesn't mean that the whole industry is going bankrupt.There are plenty of well-run automakers, and there is evidence thatafter 4 years of decline, new auto sales in the US have not onlystarted to stabilize, but to slowly increase. Michael Johnson of the ETF Database says, "Platinum is one ofthe world's rarest metals, with annual global supplies totaling onlyabout 6 million ounces, meaning that prices can be very volatile attimes. Nearly half of the global platinum supply is used by automanufacturers each year, establishing a strong relationship betweenmetal prices and the health of the auto industry." It is a basic question of supply and demand. With a limitedglobal platinum supply and an apparent increase in demand, thepotential exists for platinum to continue to surge.
Precious metal investing is not for everyone and can be veryvolatile. Speak with your financial professional to see whether aninvestment in platinum would be appropriate for your portfolio.
Aaron Katsman is a licensed financial professional both inthe United States and Israel, and helps people who open investmentaccounts in the United States. Securities are offered through PortfolioResources Group, Inc. a registered broker dealer, Member FINRA, SIPC,MSRB, NFA, SIFMA. For more information, call (02) 624-0995 or emailaaron@lighthousecapital.co.il.