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Copper Catcher
Administrator
USA
2092 Posts |
 Posted - 09/27/2009 : 21:09:13
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Precious metal ETF issuances such as GLD have been warmly welcomed by investors and traders, after some (barely remembered) initial apprehension. And palladium and platinum-backed ETFs are already trading on the London exchange. So why all the controversy over the possibility of a platinum ETF and palladium ETF in the US?
It turns out, the worldwide market for these two metals is–relative to the market for gold or silver–pretty small. So an ETF backed by bullion of the metals would be, if it got a lot of asset inflows, in effect “hoarding” them. The buying spree of the two metals by their respective ETFs could have a drastic effect on the commodity price for industrial players.
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Due to the incredibly small size of the platinum market, (roughly 1.5% the number of ounces in the silver market) it is virtually impossible to create physically-backed ETF (i.e., a GLD or SLV type ETF) for platinum without distorting the market. For this reason, all of the platinum funds on the market today are exchange traded notes, or ETNs, which are essentially debt issued by a company that is guaranteed to pay a return based on the performance of an underlying index (in this case one linked to platinum prices).
ETNs are similar to ETFs in many ways, offering relatively low cost structures and intra-day trading opportunities. But there are some key differences as well. Since ETNs are debt issues that don’t physically hold any assets, the credit quality of the issuer is important. In the case of platinum ETNs, Barclays (who issues PGM) has a solid AA- rating from Standard & Poors while UBS, the issuer of PTM and PTD, has an equally strong rating. However, as many have learned the hard way, such ratings are not necessarily the most reliable, and investors should proceed with caution if investing in a platinum ETN.
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Wow, did they sound like a buyer beware statement to you. I am waiting for the day all these ETF's come crumbling down!
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Platinum ETF's.........Ugh!
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