Platinum ETFs - Is the Metal Oversold?


"There has been a very sharp intake of metal since November, almost as rapid as the original surge."

The two major platinum-holding exchange traded instruments are the London Exchange Traded Commodity run by ETF Securities Ltd and the Zurich-based Exchange Traded Fund run by Zurich Cantonal Bank. There was all sorts of market panic in the previous November and December when rumors of such funds were circulating; the soothsayers were proclaiming that there wouldn't be enough metal and that the market was insufficiently liquid. Platinum lease rates rocketed. On Friday 24th November 2006, one-month platinum rates spiked to 86%. A far cry from now, with one-month rates effectively at zero, three months at less than 60 basis points and 12 months at 1.3%.

Meanwhile the tonnages involved in the new funds have been impressive given the size of the overall market. Activity started gently, then the momentum really started to build; and, between the end of October 2007 and mid-March 2008, the two funds between them acquired 10 tonnes of platinum, rising to 12.0 tonnes. This is an impressive strike rate.

Platinum registered its record high of $2,273/ounce in early March 2008. Equally, the rate of disposal of metal from these funds in the second half of 2008 had a significant effect on platinum's fall in price.

During March, there was a very slight fall-off in holdings. April was relatively stable and then demand started to pick up again in May and June, taking the metal under management up to the high-to-date of 15.0 tonnes over the first weekend of July; then liquidation started and between Monday 7th July and Friday 21st November, the holdings in the funds halved to 7.5 tonnes.

There has been a very sharp intake of metal since November, almost as rapid as the original surge. Since then, these funds have been replenishing their coffers and in early March the combined holdings have increased to 13.8 tonnes.

Since the November low, the net flow of funds into these platinum funds works out at $199 million. While this is small compared to the gold funds (worth $45 billion against platinum funds at $463 million), almost $200 million has gone on the table recently in the belief that platinum is oversold. If these investors are right, then they have made a superb market call. If not, then the market is again looking at an overhang.

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