Exchange traded funds that invest in platinum and palladium were lower in the first half of 2011 on concerns about the global economy, the Japan earthquake and the European debt crisis.
Platinum and palladium are precious metals like gold and silver. However, they are also favored for their industrial uses, such as automobile production.
ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL) are both in the red, year to date. Each ETF holds more than $700 million in assets. [Platinum and Palladium ETFs are Long-Term Bets.]
Due to their industrial applications, platinum and palladium can diverge from gold prices, which are driven by inflation expectations and investors’ desire for safe havens. Therefore, platinum and palladium are sensitive to economic cycles.
“Palladium is a working metal and serves as a substitute to platinum in many cases given their similar chemical properties,” Morningstar says in a profile of the ETF. “While it has a broad range of applications, including jewelry manufacturing, dental fittings, and bulk chemical production, the vast majority of the world’s palladium demand is driven by automotive catalytic-converter and electronic-device production, which has accounted for roughly 53% and 17% of total demand since 2005, respectively.”
Prices have taken a hit recently on “rising risk aversion” and Federal Reserve downgrades to the U.S. growth outlook, ETF Securities said in a recent report. Platinum and palladium edge down when cyclically assets are out of favor with investors.
The Fed’s lower outlook highlights “the near term impact of manufacturing bottlenecks caused by the Japan earthquake and the dampening impact of higher energy prices,” ETF Securities said.
ETFS Physical Platinum Shares
ETFS Physical Palladium Shares
Tisha Guerrero contributed to this article.