However, the recent rundown may be attributed to its industrial application. More than half of platinum and palladium goes into catalytic engines for the automobile industry, and any indication of slowing growth would have an immediate effect on the prices for these metals. Still, as emerging markets like India and China continue to grow, along with a burgeoning middle class, demand for autos should help bolster platinum and palladium prices.
Additionally, platinum and palladium are used in dental and medical applications, electronics and jewelry.
Currently, investors may gain exposure to the two metals through exchange traded products such as ETFS Physical Palladium Shares (NYSEArca: PALL) and ETFS Physical Platinum Shares (NYSEArca: PPLT).
Rare Earth Metals
Rare earth metals, like their moniker implies, are relatively rare compared to precious metals and are highly prized. They are also difficult to extract and process due to geographic and environmental challenges.
As our technological prowess progresses, rare earth metals are becoming increasingly vital for technological developments and the electronic industry. For instance, rare earth metals we may never have heard of before, such as lanthanum, cerium, praseodymium and neodymium, are used as crucial elements in common electronic devices like computers, memory chips, smartphones, flat-panel TVs and cameras. Additionally, rare earths also have military and defense technologies.
Investors have quickly taken to Market Vectors Rare Earth and Strategic Metals (NYSEArca: REMX). The fund holds a number of companies engaged in mining, refining and manufacturing of rare earth/strategic metals. REMX is currently the only broad rare-earth metals focused fund. [Is Uranium ETF a Bargain Buy Now?]
Investors may also take a look at the lithium fund Global X Lithium ETF (NYSEArca: LIT) as a way to cover the lithium market. Lithium is mainly used in the industrial sector, and as such, prices will follow industrial growth.
The Various Types of Commodity ETFs:
Equities. Equity-based metal ETFs are funds that hold mining companies and other companies involved in the production of various metals, such as Global X Copper Miners ETF (NYSEArca: COPX), Global X Silver Miners ETF (NSYEArca: SIL) and Market Vectors TR Gold Miners (NYSEArca: GDX). The performance of these companies is not always correlated to their underlying commodity, but when prices of their commodities are high, profit margins generally improve. For some of the more uncommon metals, such as lithium, equity-based commodity ETFs may be the only way to gain exposure to these commodities in an ETF. [Gold Miner ETFs Rally Back Near Lifetime Highs.]
Physical. Physical ETFs hold the actual physical commodity, which is stored in the vaults of London, Switzerland and now Singapore, and owners of the ETF own an interest in a fractional amount of the underlying metal. The small retail investor may consider physical ETFs over holding the physical commodity because of costs associated with storage of the commodity. More physically-backed metals funds have made an appearance in recent years, including the popular SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: SLV).
Futures-based. Most metals, as are most commodities, are traded on futures exchanges. A future is a promise to buy, or sell, a commodity for a set price at a set date in the near future. A majority of the future contracts traded on the exchange floor are settled or swapped for cash before the expiration date. Before ETFs came into existence, futures generally weren’t accessible for small investors. Examples the PowerShares DB Silver (NYSEArca: DBS) holds silver futures contracts, which may be subject to the damaging effects of contango.
Demand for metals is on the rise, and investors are showing a growing interest in precious metals ETFs as an easy way to gain exposure to precious metals price movements. Whatever precious metal piques your fancy, be sure to read up on how the fund works so that there are no nasty surprises down the line.