I reckon $1+ within 6 months...............Platinum ETF: have...

I reckon $1+ within 6 months...............

Platinum ETF: have the Swiss stolen a march on the rest?
The London platinum-backed Exchange Traded Commodity added metal last week. Is this foreshadowing a recovery in platinum?

Author: Rhona O'Connell
Posted: Friday , 05 Dec 2008

LONDON -


The head of asset allocation to Zurich Cantonal Bank highlighted early in December the fact that there has been considerable interest in the bank's platinum-backed Exchange Traded Fund and suggested that investors were looking at "real assets" as a hedge against credit problems and the malaise in the economic environment.

The story has not been the same in the London-based Exchange Traded Commodity, which begs the question - do the Swiss know something that the rest of us don't? The answer probably lies in the fact that Zurich is the de facto terminal market for platinum and also for palladium, with the majority of the world's bullion inventories stored in vaults in Switzerland and it may well be that there is a more natural affinity for platinum in that country than in some others. It also, of course, points to the long-term time horizons of Swiss investors.

The changes in these two platinum-backed funds are shown in the accompanying chart. These are up to date as far as end-November (the ZKB figures are only released weekly) and illustrate the extent to which holdings have varied in the London-based fund in particular. This fund has peaked, so far, at just over 418,000 ounces on July 4th this year; an amount that had taken just over fourteen months to amass. The subsequent sell-off, which came as commodities as a whole came under a cloud and US financial entities were under severe pressure, saw these holdings reduced by just over 252,000 ounces or 68% in 4½ months, adding more metal into a platinum market that was already under some pressure.

To give this a sense of perspective, this liquidation from July - late November, if simply extrapolated on a straight-line basis, would equate to 637,000 ounces, or roughly 4½ weeks' industrial consumption and will certainly have helped to keep platinum prices under pressure.

In Zurich, meanwhile, holdings in the ZKB fund were steady throughout July and the first half of August, since when there has been regular investment in the fund, amounting to almost 40,000 ounces and taking it to just over 105,000 ounces at the end of November.

The Swiss fund's increase in holdings has clearly not offset the falls in the London fund, with a net withdrawal from early July to late November of 210,000 ounces or, on an annualised basis, the equivalent of just less than four weeks' industrial demand.

This liquidation reflects more than one factor. Speculative disillusionment may be one element, but speculative users of ETFs has been less prevalent than physical investors, and these latter are much more likely to have been involved in the majority of the disposal, especially if distress sales were necessary.

The above argument has a bearish tinge to it. In the interest of balance it is important to point out two important features. The first is that since the start of this year the two instruments between them have absorbed almost 78,000 ounces of metal, which would appear to be in firm hands. The second is that the attrition in the London-based ETC has not only slowed, but in the first week of December it has started to reverse, with the absorption of 31,500 ounces in the space of a week. With platinum (and palladium) having suffered so heavily under the constant announcements of falling vehicle production and sales (with China the latest, announcing a fall in auto sales of 10.3% in November against November 2007) and dropping by 64% from its record high in March, would it be too much to hope that the Swiss investors, in their prudence, have been the sensible ones and that we may, just, possibly, be looking at the lows?