Barclays Bank PLC has temporarily suspended any further sales from inventory and any more issuance of the ETN iPath Dow Jones AIG Platinum TRSub Index (NYSEArca: PGM), write Kristin Friel and Christine Hudack for Trading Markets.

The suspension of notes may cause deviations in the trading value – more commonly known as tracking error – of the ETN. By limiting the issuance and sales, an imbalance of supply and demand in the secondary market for the notes may occur, and the result would be notes trading at a premium or discount in relation to the baseline value. (How to play precious metals with ETFs and ETNs).

Commodity ETFs have been grappling with potential CFTC regulations for the last several months. (How times are changing for commodity ETFs).

ETNs  are unsecured obligations, not secured debt. The securities have no principal protection; thus, riskier than ordinary unsecured debt securities. (Seven differences between ETFs and ETNs).

For more information on platinum, visit our platinum category.

• iPath Dow Jones AIG Platinum TRSub Index (NYSEArca: PGM): up 49.7% year-to-date

Other platinum ETNs are unaffected, including E-TRACS UBS Short Platinum ETN (NYSEArca: PTD) and E-TRACS UBS Long Platinum (NYSEArca: PTM).

Max Chen contributed to this article.

There are many reasons to buy into a precious metals investment, and ETFs can give the desired  exposure to gold, silver and platinum.

Gold. Gold is the godfather of all the precious metals for various reasons, according to Aryeh Katz for Investopedia:

• Gold is a safe haven and is recognized by almost all governments as being a safe store of value
• Inflationary pressures can be hedged with gold (read more on fighting inflation with ETFs here)
• War and political upheaval have always sent people into gold-hoarding mode; an entire lifetime’s worth of savings can be made portable and stored until it’s needed

Moming Zhou for MarketWatch reports that Jim Rogers recently claimed gold will hit $2,000 per troy ounce within the decade. As long as the U.S. dollar continues to weaken, gold prices could continue to rise because gold priced in dollars will become cheaper for overseas buyers (Read 7 more things you should know about gold here).

• SPDR Gold Trust (NYSEArca: GLD)
• iShares COMEX Gold Trust (NYSEArca: IAU)
• PowerShares DB Gold (NYSEArca: DGL)
• ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)
• Market Vectors Gold Miners (NYSEArca: GDX)
• E-TRACS UBS Bloomberg CMCI Gold ETN (NYSEArca: UBG)

Silver. Silver – the “poor man’s gold” – is also a good way to hedge against inflation, and it benefits from its appeal as both an industrial and precious metal. This means that it can be treated as a safe haven investment, as well as an investment for investors looking to benefit from an uptick in industrial demand. A note of caution:  since silver’s market is smaller than gold’s, it can be more volatile. Silver’s main investment approach is determined by factors such as:

• Silver’s role in photography and film has kept demand high; however, the advent of digital cameras has dented the need for silver
• Middle class population growth in emerging markets is great, and this demand for industrial and electrical supplies puts much more pressure on the silver store
• Silver’s use in batteries, superconductor applications and microcircuit markets is a major source of demand
  

• ETFS Physical Silver Shares (NYSEArca:SIVR)
• iShares Silver Trust (NYSEArca: SLV)
  
• PowerShares DB Silver (NYSEArca: DBS)
• E-TRACS UBS Bloomberg CMCI Silver (NYSEArca: USV)
  

Platinum. Platinum tends to fetch a higher price than gold during routine periods of market and political stability simply because it’s much rarer. Other factors affecting platinums price include:

• The greatest demand for platinum comes from automotive catalysts, which are used to reduce emissions; after this, jewelry accounts for the majority of demand
• Auto sales and production numbers are also determinants of platinum’s price
• Platinum mines are heavily concentrated in two countries: South Africa and Russia; This places much more pressure on the platinum market.

Jeff Nielson for DNA reports that the direction of the precious metals markets are not easy to determine in the short term. The longer the time horizon (and the larger the data stream), the more predictable are the movements of companies, commodities, and overall markets.

Various ETFs that give exposure to precious metals:

• E-TRACS UBS Long Platinum ETN (NYSEArca: PTM)
• iPath Dow Jones AIG Platinum TRSub Index (NYSEArca: PGM)

In addition to specific exposure to metals ETFs, investors can also find broad metal ETFs that hold either the metals themselves, futures contracts or the stock of companies involved in the production of these metals:

• PowerShares Global Gold & Precious Metals (NYSEArca: PSAU)
• SPDR S&P Metals & Mining (NYSEArca: XME)
  
• Emerging Global Shares DJ Emerging Markets Metals & Mining Titans (NYSEArca: EMT)
• PowerShares DB Precious Metals (NYSEArca: DBP)
• iPath Dow Jones AIG Precious Metals TR Sub Index (NYSEArca: JJP)
  

For more stories about precious metals, visit our precious metals category.

For full disclosure, Tom Lydon’s clients own shares of GLD and SLV.

Hard-asset ETFs can be used to both diversify a portfolio as well as protection from both inflation and broader market turmoil, comments Don Dion for TheStreet.

Some hard asset ETFs don’t hold futures or physical commodities. Instead, these funds track indexes made up of the stock of commodity producers. Some broad equity-based, hard-asset ETFs include:

• SPDR S&P Metals & Mining (NYSEArca: XME), currently up 66.8% year-to-date, includes U.S. metals and mining companies. The fund has an expense ratio of 0.35%.
• Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP), currently up 29.9% year-to-date, this fund seeks to reflect the Rogers-Van Eck Hard Assets Producers Index, which is often quoted as the definitive commodity equities benchmark. HAP also holds water and renewable energy components in its portfolio.

iPath offers both broad and specific exposure to hard assets with a line of exchange traded notes (ETNs) that track the futures contracts and Treasuries. Potential investors in these ETNs should be aware of regulatory actions that the Commodity Futures Trading Commission (CFTC) may impose.

• iPath DJ AIG Ind Metals TR Sub-Idx ETN (NYSEArca: JJM): up 45.6% year-to-date; includes a basket of commodities.
• iPath DJ AIG Tin TR Sub-Idx ETN (NYSEArca: JJT): up 42.3% year-to-date
• iPath DJ AIG Platinum TR Sub-Idx ETN (NYSEArca: PGM): up 32.5% year-to-date
• iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD): up 114.7% year-to-date
• iPath DJ AIG Aluminum TR Sub-Idx ETN (NYSEArca: JJU): up 10.5% year-to-date

ETF Securities has successfully launched global physical-asset ETFs:

• ETFS Silver Trust (NYSEArca: SIVR): up 9.8% in the last month
• ETFS Gold Trust (NYSEArca: SGOL): down 1.3% in the last week

Larry Swedroe, principal and director at Research at BAM advisor Services and at Research for Buckingham Family of Financial Services, says that purchasing commodities is a way to protect against supply shocks and event risks that could negatively influence a portfolio of stocks and bonds, according to iStockAnalyst.

Swedroe also argues that position limits on commodity ETFs are “purely politically driven,” which could create conditions of more volatility. The ultimate outcome, he says, will result in the value of contracts being driven higher and people having to pay more for insurance.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

London-based securities group ETF Securities filed for the first bullion-backed platinum and palladium ETFs to the United States. The last time the idea of such ETFs was floated back in 2007, there was plenty of resistance. This time, the move has been met with silence.

Hard Assets Investor on iStockAnalyst says that The Big Three can be thanked for the quiet this time around: The auto industry’s collapse has changed everything, making it possible for ETF Securities to bring its platinum and palladium funds – already very successful in Europe – to the States.

The biggest question now is whether there will be shortages of this bullion, as the economic pullback has investors crazy for physical investments. Keep in mind that platinum and palladium are primarily industrial metals, used in everything from computer hard drives to fertilizers to fiber optic cabling. Platinum also plays a key role in the catalytic converter, where the harmful emissions from cars are cleaned up.

Investors eager to see the launch of these funds will for now have to content themselves with exchange traded notes (ETNs) until the first ETF is introduced instead. Bear in mind that there’s also no guarantee that the Securities and Exchange Commission (SEC) will give the go-ahead to these funds.

The ETNs don’t hold any physical bullion.

• E-TRACS UBS Bloomberg Long Platinum ETN (PTM): up 21.6% year-to-date

• iPath Dow Jones AIG Platinum TR Sub-Index ETN (PGM): up 22.9% year-to-date

Investors who are bullish on platinum now have an ETF in the works that could create demand for the metal, as each share must have a corresponding quantity of the precious metal behind it, Liam Denning for The Wall Street Journal explains. The filing for the U.S. fund was made by ETF Securities, which has a platinum fund in London right now.

Since the prospective ETF first filed, platinum is up 5%, and has been up 51% since its November low. The metals had been suffering, because the auto industry hit platinum where it hurts – catalytic converters for cars make up 55% of the world’s total platinum demand.

But the impact of such a fund on the platinum market here can be hard to assess. ETF Securities launched a London-based ETF focused on platinum, when roving blackouts plagued South Africa shortly thereafter. This disrupted supply and made it a challenge to determine the impact the fund had on platinum’s availability.

Despite cutbacks announced by miners, a surplus is expected in 2009 and possibly 2010. A new ETF could help continue to fuel that demand, but there’s no guarantee that the new fund will be approved. For now, it’s watch and wait.

A few ways to access platinum in the United States now:

• E-TRACS UBS Long Platinum ETN (PTM): up 25.8% year-to-date

• iPath Dow Jones AIG Platinum Sub-Index ETN (PGM): up 26.8% year-to-date

Financial Times explains that gold broke the $1,000 per troy ounce last month, driven by the credit crunch and volatile markets. The periods of strong momentum the metal has experienced in the last year leads one to wonder if the gold insanity can continue, or whether it will become a victim of profit-taking.

Suki Cooper on the Commodities Research team at Barclays Capital focuses on precious metals markets, covering gold, silver, platinum and palladium. She made a few points about gold in a q&a with readers of the Financial Times:

• A weakening dollar would appear to support an uptrend in gold prices, but the opposite is not always true. Just because the dollar is strong does not mean prices will stop appreciating. In the current rally, gold prices have sustained even though the traditional drivers haven’t supported it.
• In Barclay’s view, prices are likely to make a sustained move above $1,000 in the second half of the year.
• Investors buy gold for a range of reasons: a dollar hedge, an equity hedge, a volatility hedge, inflation hedge and as a safe haven.
• Mine supply is stabilizing and jewelry demand is weakening; offsetting that is a wave of investment demand.
• Silver’s uptrend has been fueled by gold’s gains instead of it’s own fundamentals. Current levels imply that silver is undervalued, while gold is overvalued. Dorothy Kosich for MineWeb reports that Silver enjoyed a strong run last month which saw the metal’s price rise 16% compared to gold’s 11% rise.
• The fundamental outlook for silver has deteriorated, and Cooper says the underlying supply and demand outlook for silver remains unfavorable. The mine supply is set to grow.
• Cooper expects palladium’s fundamentals to remain weak because of a low demand outlook (the metals is primarily used in gas vehicles, and the United States is a key market).
• Platinum’s outlook also remains dim, Cooper says, as most of the demand is centered around the auto industry, which is in dire straits right now.

• PowerShares DB Gold (DGL): up 17.5% in the last three months

• iShares Silver Trust (SLV): down 31.9% in the last three months

• iPath DJ AIG Platinum ETN (PGM): up 26.9% for the last three months

Discuss Commodity ETFs in our forums.

In the third quarter, gold demand showed a healthy gain totaling 1,1334.4 tonnes, up 18% compared to a year earlier, according to EconomPic Data. This translates to a 51% rise to $31.8 billion which was an all-time quarterly high.

Where Did the Demand Come From? The increased demand came after the sharp drop in gold prices. The demand came from investors with 137.5 tonnes (56%) relative to year-earlier levels, jewelry rose 8%, but industrial/dental demand dropped 11%. Gold for jewelry has dramatically diminished but gold hoarding and ETFs are noted to be up dramatically.

Will It Last? Can the gold rally sustain itself, though? Gold, platinum and other precious metals may be poised to rebound after the federal funds rate has fallen to record levels and speculation in precious metals have been gaining momentum on government plans to bolster the economy.

• SPDR Gold Shares (GLD): up 3.5% in 2008

• PowerShares DB Gold (DGL): up 0.4% in 2008

Platinum On the Cheap. Another precious metal, platinum, has dropped down to around the price of gold, which is historically cheap, reports Pham-Duy Nguyen for Bloomberg. Platinum futures for April delivery have been floating around $1,000, the highest since Oct. 15 and sharply off a record high of $2,308.80, reached on March 4.

• iPath DJ AIG Platinum TR Sub-Idx ETN (PGM): up 1.1% in the last week

With the U.S. Senate rejecting a $14 billion bailout of the U.S. automakers, the platinum industry and the exchange traded notes (ETNs) that track the precious metal may find themselves at a crossroad.

Vehicle manufacturers make up about 50% of the total consumption of global platinum and have a direct impact on the demand for the metal. 

A combination of the failure of the bailout, the demand for smaller more efficient vehicles, a drought in the sales of vehicles, the 46% decline in platinum prices for the year, and an expected surplus of platinum in the near future has forced the major platinum producers in South Africa to construct cost cutting and efficiency plans to rekindle any losses suffered and plan for a slow future, states Anthony Sguazzin of the Business Report.

An ETN that may be affected is the iPath DJ AIG Platinum TR Sub-Idx ETN (PGM): down 19.5% since its inception on July 8.

Some experts believe that even with a passing of the U.S. bailout, the platinum industry will not be able to rebound and a major restructuring is needed.  They believe that a supply-side adjustment, more specifically, a curb in production is needed to offset the weak demand.

Investor concern over the effects of global economic downturn cut demand for platinum used in jewelry and auto catalysts, writes Jae Hur for Bloomberg.

Platinum dropped to a one-week low with immediate-delivery platinum losing as much as 3% to $793.50 an ounce. October-delivery platinum fell 7.3%, closing at $799 an ounce.

Since platinum futures in New York reached historic high of $2,286 an ounce in March, more than double gold’s historic high of $1,003 an ounce, platinum has plummeted 64% while gold has dropped 28%, according to Moming Zhou for MarketWatch.

Platinum contracts for January delivery closed at $827.10 Monday while gold for December delivery ended at $726.80 an ounce.

Last year, more than 60% of all platinum consumed was used by auto industry. This year, the estimated growth rate of global car sales will slow to 1%, lower than previous forecast of 1.9% made back in May. With projected weakening production, slower sales and increasing consumer preference for smaller vehicles, which means smaller auto catalysts, platinum may see the demand drop continue.

iPath DJ AIG Platinum TR Sub-Idx ETN (PGM), down 59.2% since its July 8 inception and could slide even futher if the slowdown persists.

Even if precious metals have taken a beating, that does not mean an investor should stray away from other metals such as gold.

Nick Barisheff writes about six biggest gold myths from his perspective:

1. Gold is a bad investment. Actually, holding between 7.1-15.7% in precious metal bullions may reduce portfolio volatility and improve returns.
2. Gold is not a good inflation hedge. In reality, gold has maintained its purchasing power and increased it against all major currencies. This is true as long as central banks keep increasing money supply more than their country’s GDP growth.
3. Gold does not pay dividends or interest. Gold’s capital appreciation is really many times greater than current interest yields, while not subject to risks that interest-bearing investments are subject to.
4. Gold is an archaic relic. Gold is still trading as an alternative currency.
5. Mining stocks are better investments than bullion. Mining stocks are considered more volatile and risky compared to the bullion. During market declines, mining stocks follow broad equity markets downwards even when metal prices are rising.

More prudent investors will ignore the myths so as to grasp the opportunity to add an asset class that will diversify a portoflio, protect against inflation and perhaps provide better returns than traditional stock and bond assets.

There has been a lot of investor interest in gold as a hedge against volatility these days. We continue to use trend lines to guage when we’re in an ETF and when we’re out. Right now, the trend is not there for gold, as it’s well below both the 50-day and 200-day moving averages.

Gold has now slumped to its lowest price in more than a year, following the government’s takeover of Fannie Mae and Freddie Mac, reports Feiwen Rong for Bloomberg.

The dollar index, meanwhile, rose to a one-year high, boosting the PowerShares DB US Dollar Index Bullish (UUP). UUP and SPDR Gold Trust (GLD) compared:

According to one commodity broker, the markets are torn between investing in gold ahead of the Indian wedding season and those selling gold as a result of the dollar’s strength.

According to ZEAL Speculation and Investment, Indian wedding season tends to cause a rally in gold prices in early October through late November. Families of Indian brides give them wedding gold in the form of 22-karat jewelry. India is the world’s largest consumer of gold, much of it in the form of jewelry, and about 40% of India’s gold demand occurs during this wedding season.

Morgan Stanley seems bearish on precious metals, cutting its price forecasts for both gold and silver. Analysts now say gold may average $900 an ounce in 2008 and $950 next year, down from forecasts of $950 this year and $1,000 next year.

Platinum futures have also fallen, to an 18-month low, and palladium stepped back as the dollar hit an 11-month high against the euro, reports Dave McCombs for Bloomberg. Low demand for autos is blamed, because platinum and palladium are used in emissions systems.

Other ETFs affected include:

• PowerShares DB Gold Double Short ET (DZZ), up 44.8% since Feb. 28
• iShares Silver Trust (SLV), down 18.7% year-to-date
• iPath DJ AIG Platinum TR Sub-Index ETN (PGM), down 31% since July 8 inception
• ELEMENTS MLCX Precious Metals ETN (PMY), down 24.2% since April 4 incpetion

For full disclosure, some of Tom Lydon’s clients own shares of UUP.