Platinum ETFs Have Some Crying Foul

Some don't believe there's enough of the precious metal.
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There is a platinum cloud hanging over the precious metals market, and it may not have a silver lining.


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.

Christian's not alone in his concerns.

Anglo Platinum Ltd.

, the world's largest platinum producer, is opposed to the very idea of a platinum ETF. Last month, the company said it would not supply the metal to ETFs out of concerns that it would exacerbate already tight supplies and inflate prices.

But Christian doesn't believe objections from miners or carmakers will stop platinum ETFs from showing up on our shores. "Platinum investments are good for the investor," Christian says. "The question is can you make it liquid enough so it doesn't damage the market."

It also hasn't deterred others from wanting to launch ETFs that buy the precious metal. Zurich Cantonal Bank plans to debut palladium, platinum and silver ETFs on the SWX Swiss Exchange next week.

Most Americans can't invest in the platinum ETF Securities fund. However, a mining executive recently was quoted on the industry Web site

MiningMX that a U.S. bank had been in contact with his company, indicating it might soon offer the same kind of product.

As an exchange-traded commodities platform, the Physical Platinum Fund buys and holds real platinum. Investors get true exposure without the hassle of storing the stuff themselves or getting involved in the futures market. Other opportunities to play this rare and expensive metal are scarce.

Platinum contracts for July closed Thursday up $11.70 at $1,310.80 per ounce on the New York Mercantile Exchange. The metals consultancy group GFMS last week issued a

report predicting prices could reach $1,450 an ounce by the end of the year, adding even that figure "could easily prove too conservative" if platinum ETFs catch on.

Staff Reporter Simon Constable contributed to this story