Platinum Falls Most in More Than 6 Years as Investors Doubt ETF
By Feiwen Rong and Danielle Rossingh
Nov. 22 (Bloomberg) -- Platinum slumped the most in more than six years in London, declining from a record, as some investors doubted the prospect of an exchange-traded fund being introduced for the precious metal.
Platinum, used in jewelry and car-exhaust systems, dropped when the talk of an ETF attracted skepticism that supply may not be enough to support a fund similar to those already available for gold and silver. So-called ETFs purchase and store metal, allowing investors to trade assets without owning them.
An ETF would be ``disruptive'' because the platinum market is ``very narrow,'' John Sheldrick, finance director of Johnson Matthey Plc, the world's biggest distributor of platinum-group metals, said in an interview today. ``It would lead to more volatility.''
The platinum market is moving closer to a match between supply and demand after eight years of deficit. The shortfall this year will be 20,000 ounces, compared with 70,000 ounces in 2005, Johnson Matthey said in its Nov. 14 market review.
``I am a firm believer in ETFs, but profitability for an ETF for platinum would swing enormously in a small and illiquid market,'' Jonathan Barratt, managing director at Commodity Broking Services, said by telephone from Sydney today. ``It's dangerous to trade platinum at the moment as the volatility is unbelievable.''
Platinum for immediate delivery fell $81.50, or 6.5 percent, to $1,170 an ounce in London at 11:30 a.m. A close at that level would make it the biggest one-day drop since August 2000. The metal jumped as much as 11.9 percent to record high of $1,402.50 yesterday.
On the Comex division of the New York Mercantile Exchange, platinum futures for January delivery fell $49.10, or 4 percent, to $1,170 an ounce. Prices are up 21 percent this year.
``If prices were to remain this high for an extended period, jewelry demand in China would fall,'' which may lead to a surplus, Sheldrick said.
The platinum market is ``feeling bruised,'' following the commodity's recent moves, Robin Bhar, a London-based analyst with UBS AG, said in e-mailed note today. ``Short-term forecasts in platinum are impossible at the moment,'' Bhar said, adding that the metal ``could trade hundreds of dollars higher or lower in the next few days.''
Speculative buying over the launch of an ETF prompted some investors to buy the precious metal at above $1,300 an ounce level yesterday. These investors are now selling platinum as prices decline, said Nobito Kaneda, platinum trader at Sojitz Corp. in Tokyo.
Given the lack of ``liquidity'', or trading volume, ``selling pressure is overwhelming today in Tokyo from short-term speculators in both spot and forward market,'' Kaneda said. ``Also physical dealers are consistent sellers with platinum at this level.''
Platinum for October 2007 delivery fell 95 yen, or 2.1 percent, to settle at 4,384 yen ($37) a gram on the Tokyo Commodity Exchange, the world's largest market for trading futures in platinum group metals. It gained 1.8 percent yesterday.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
When Barclays Bank Plc began offering a silver-backed ETF on April 28, silver had its biggest gain in 11 years. Barclays has not filed any regulatory documents relating to a publicly traded platinum trust and has no immediate plans to do so, Christine Hudacko, spokeswoman at Barclays in San Francisco, said in an e- mail to Bloomberg.
Usually an issuing firm of an ETF would file an initial prospectus with the U.S. Securities and Exchange Commission and the SEC would then review it by evaluating the costs and benefits of such an instrument, Tom Pawlicki, analyst at Man Financial Inc., said in a report today.
``The platinum market has been in supply deficit for the past 8 years,'' Pawlicki said. ``An ETF offering would certainly crimp tight supplies and upset the market's rationing function.''
Platinum trades roughly 3 percent as much as gold on the U.S. exchanges. Total supply of gold in 2005 was 128 million ounces while platinum supply in 2006 is expected to be 7 million ounces, Pawlicki said.
Gold gained in London as the dollar fell for a second day against the euro, boosting the metal's attraction as an alternative investment for U.S. stocks and bonds.
Gold for immediate delivery gained 30 cents, or 0.1 percent, to $627.80 an ounce.
The dollar fell on speculation the U.S. Federal Reserve will lower interest rates as the economy cools.
The U.S. currency is lower against all 16 of the world's most actively traded currencies after economic advisers to President George W. Bush yesterday cut their forecasts for growth next year.
``Dollar weakness continues to boost sentiment,'' James Moore, a Kettering, England-based analyst with TheBullionDesk.com, said in an e-mailed note today. Should gold breach $630, it may be on course for $644, and could finish the year as high as $700 an ounce, Moore said.
Selling pressure on gold may increase as some executive directors at the International Monetary Fund, the world's third- largest owner of the precious metal, said the fund should sell some of its holdings to cover projected operating losses.
``We would support the use of fund gold as part of the solution to IMF financial needs,'' Tuomas Saarenheimo of Finland, chairman of a group that coordinates the position of European Union members on the fund's 24-person board, said in an interview in Washington.
To contact the reporters on this story: Feiwen Rong in Singapore at at Frong2@bloomberg.net
; Danielle Rossingh in London at firstname.lastname@example.org
Last Updated: November 22, 2006 06:45 EST