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Platinum Soaring!
Platinum prices were up $32.00 on Friday.
Why?
Because:
A second platinum-backed financial instrument of about 77,000 oz is coming to the market, and producers fret about the possible impact of higher prices on the sensitive jewelery sector in a finely balanced market.
ETF Securities is listing five new exchange-traded commodities (ETCs) on the London Stock Exchange from 24 April, including a precious metal basket ETC.
The announcement comes hard on the heels of Zurich Cantonal Bank (ZKB) saying they would launch a platinum, palladium and silver ETF to join their gold ETF.
ZKB said it has 70,000 oz of platinum safely stored in a vault to back its ETF instrument.
“We will list five products and there will probably be $100m across each product in the first 12 months,” ETF Securities head of listings and research Nick Bienkowski told Miningmx. The products are platinum, palladium, gold, silver and a mixed precious metals.
At today’s prices, that would equate to 77,000 oz of platinum.
“The way this product works is that when metal is delivered to the vault we will issue the equivalent shares,” Bienkowski said. Each share represents a tenth of an ounce.
“It depends on what metal can be acquired or what is available,” he said. The investment banks will acquire the metal from where they can find it.
Bienkowski would not say if the investment banks had acquired any metal or how much was held.
Anglo Platinum, the world’s largest platinum producer, which has no mechanism to supply metal for such a product, has most of its production tied up in offtake agreements.
“We are opposed to the ETF concept, but there’s not much we can do about it,” said Anglo Platinum spokesman Trevor Raymond. “Most of our product is accounted for by metal offtake contracts and whatever is surplus goes to the spot market. We don’t have a mechanism to specifically supply these products.”
The investment banks will have to compete on the open market, which trades a small 5,000 to 10,000 ounces a day.
“The real concern is that other banks who don’t want to be left behind will jump on the band wagon, which means more metal coming off the market and putting tremendous pressure on prices,” said Bob Gilmour, investor relations manager for Impala Platinum, world number two platinum producer.
The only segment in the platinum market that has flexibility is the jewelery market.
Jewelery accounts for roughly a quarter of the annual global demand of seven million ounces.
“If these products are successful, it will mean more metal coming off the market and prices rising. The only segment that can give in this situation is jewelery, and that’s not an ideal situation,” Gilmour said.
John Reade from UBS Investment Research said in a note shortly after the ZKB announcement that platinum prices could rise $50 over the next three months to $1,350/oz.
“We believe the market has underestimated the potential impact of the ETFs on platinum and palladium prices,” Reade said.
The platinum and palladium ETCs will gradually build up the amounts of metal they take off the market as demand for the products grow, Bienkowski said.
“It’s too early to say what we expect until we see how it’s been running for a few months and speak to investors to gauge their reaction to these products,” he said.
Investors of these products are generally “buy and hold” investors, who gradually accumulate more, he said.
“What will damage the market is a hedge fund buying all the available platinum and then dumping it on the market three months later. That’s not how these products work,” he said.
Pension funds are likely to take some time before investing in these products because of internal restrictions on adding new products to their portfolios. “We think they may invest in these over time.”
Our prediction: Platinum and Gold Engagement Rings will be going up in price soon.
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