Platinum ETFs: What They Are and How They Work

What Are Platinum ETFs?

Platinum exchange-traded funds (ETFs) are investments with exposure to the platinum market. These funds track the price of platinum through physical holdings or financial derivatives, offering an avenue for portfolio diversification.

How Platinum ETFs Work

Platinum ETFs let you invest in the platinum market without physically owning the metal. These funds track the price of platinum.

For physical ETFs, each share represents a certain quantity of platinum stored in a secure vault, with the ETF trustee overseeing its management. Meanwhile, derivative-based ETFs use futures contracts to replicate the performance of platinum.

As investors trade shares, the fund’s net asset value fluctuates with platinum’s market price. The value of these shares should correlate with platinum’s prevailing market price. It’s an efficient way of investing in platinum, offering liquidity and simplicity since you can trade shares in an ETF more easily than buying or selling the metal.

Benefits of Platinum ETFs

Investing in platinum ETFs has several key benefits. First, they provide direct exposure to platinum prices without the need to store and insure the physical platinum at a significant cost.

Second, they offer high liquidity, as these ETFs are traded on an exchange like stocks, allowing investors to buy or sell shares anytime during market hours.

Third, they enable portfolio diversification. Since platinum often moves differently from other commodities or equities, it can be a hedge against market volatility.

What to Consider When Investing in Platinum ETFs

Investing in platinum ETFs requires careful consideration.

You should see whether the ETF holds physical platinum or uses futures contracts. The former offers direct exposure, while the latter involves more complexity.

You’ll also want to review the fund’s liquidity. Higher trading volumes should mean it’s easier to buy and sell shares.

Next, consider expense ratios since lower ratios could be better for your pocket, particularly for long-term investments. Nevertheless, lower fees in a fund not managed well will cost you more in the long run.

Lastly, check the fund’s tracking error—that is, how closely it follows the price of platinum. Remember, diversification is critical. Platinum ETFs can add a unique element to your portfolio but shouldn’t be out of proportion in your overall portfolio.

Top Platinum ETFs

Two of the largest platinum ETFs are the abrdn Physical Platinum Shares ETF (PPLT) and GraniteShares Platinum Trust (PLTM).

As of January 2024, the largest platinum ETF is PPLT, with about $920 million in assets, followed by PLTM, which also has a significant asset base of about $920 million.

The abrdn Physical Platinum Shares ETF (PPLT) has an expense ratio of 0.60%. GraniteShares Platinum Trust (PLTM) has an expense ratio of 0.50%.

Before placing any investment, you’ll need to conduct careful due diligence.

Risks of Platinum ETFs

Investing in these ETFs carries inherent risks, primarily market volatility. Platinum prices fluctuate significantly, often more than gold or silver, leading to potential losses or emotional stress. Investors must consider supply-demand changes of this metal since it’s rarer and usually more sensitive to market changes.

The price of platinum is significantly influenced by its use in the automotive sector. When automobile sales are up, the value of platinum goes up. It is also a platinum group metal, as is palladium. Essentially, when palladium prices increase, industrial manufacturers might switch to platinum, which, though usually more costly, is more efficient for specific uses.

Platinum is extracted from ore deposits, often alongside nickel and copper ores. The main sources of platinum are in South Africa, followed by Zimbabwe and Russia. Troubles in those areas, such as an electricity shortage in South Africa that sent platinum to its all-time high in 2008, can cause a spike in prices. Often, its price is given in troy ounces (a unit of measure that dates to the Middle Ages in Troyes, France), which is about 31.10 grams.

While these ETFs remove the need for physical ownership of platinum, they are subject to market risk like any other investment. Economic factors, substitution threats, and environmental concerns can also pose challenges.

How to Invest in Platinum ETFs

Investing in platinum ETFs is a relatively straightforward process accessible to seasoned and novice investors.

First, you’ll need to have an investment account. This can be done through a brokerage firm or an online trading platform.

Once your account is active, you can then buy shares in a platinum ETF of your choice. You can do this directly from the stock exchange where the ETF is listed or through your broker. Always remember to conduct due diligence before investing.

The attractiveness of investing in any ETFs lies in their simplicity. It’s akin to buying shares of a company. But instead of owning a part of a company, you’re essentially owning a fraction of a portfolio that tracks the price of platinum.

The Bottom Line

Platinum ETFs are a more straightforward way to tap into the platinum market without physically owning the metal. These investment instruments have clear advantages, such as ease of trading and portfolio diversification. However, potential downsides include price volatility and management costs.

Before investing in these types of ETFs, it’s crucial to carefully assess the market conditions, the historical performance of the ETF, and your personal risk tolerance. As with any investment, there’s always a degree of risk involved, so thorough research and careful consideration of your financial objectives are essential.