Platinum ETFs Have Some Crying Foul

There is a platinum cloud hanging over the precious metals market, and it may not have a silver lining.

London-based ETF Securities last week launched the Physical Platinum Fund, the first exchange-traded fund to invest in and accumulate the precious metal. And so far, it has attracted about $8 million worth of investment, equal to just over 6,000 ounces.

While that might not be a blistering pace, it's not too shabby either. But it does have some people concerned that it could be the beginning of the end of the platinum market.

Unlike gold or silver, platinum is not a metal used to accumulate wealth. Its utility is mainly in its industrial purposes, particularly in making car components.

If the platinum needed for catalytic converters and spark plugs starts being hoarded by ETF investors, automakers could end up feeling the pinch. And so could car buyers.

Jeff Christian, managing director at the specialty consulting firm CPM Group, believes higher prices would be only part of the story if platinum funds arrived in the U.S.

"I think it would exacerbate volatility," Christian says, pointing out that ETFs based on precious metals offer a "daily measure of demand" encouraging investors to chase the ups and downs of the market.

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