Platinum: Like Gold, Only Better

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"Why buy gold when platinum is rarer, dearer and far more useful?"

Why buy gold when platinum is rarer, dearer and far more useful?

Gold might have history on its side; but, when it comes to investing in precious metals, platinum arguably makes more sense. Platinum is rarer and dearer. What's more, unlike gold, it has an important industrial use in automotive catalytic converters and LCD TV screens. If that weren't enough to recommend the white metal, the launch of new exchange-traded funds makes platinum easier than ever to buy and sell.

How does platinum compare to gold as an investment? It trails its yellow sister when times are bad but outperforms when industrial demand recovers. That's been the case in the past three months, as platinum prices have outpaced gold's by roughly 10 percentage points. These days, an ounce of platinum at $1,600 buys roughly 1.4 ounces of gold. That's more than the average of 1.2 ounces last year, according to Bloomberg. Back in May 2008, an ounce of platinum bought 2.4 ounces of gold.

ETF Securities launched its platinum fund in Europe in 2007. At the time, platinum miners were "wringing their hands that ETFs would chase liquidity from the market and introduce dangerous volatility," recalls Peter Ryan, senior consultant at GFMS Metals Consulting in London.

The market was indeed volatile in 2008. With production problems at South African mines and high energy prices driving up recovery costs, platinum soared to $2,250 an ounce. Then, as the economic crisis bit, it slumped to $774.

Coming out of the ditch, the ETFs "have been the savior" for platinum miners, says Ryan. He notes that platinum bullion held by the ETFs has leapt from 300,000 ounces at the end of 2008 to 930,000 ounces today.

"The ETFs are definitely responsible for driving up the price," he says. "It has galvanized the market."

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