(This post by Dave Forest appeared on OilPrice.com.)
Gold investors have long-believed the mainstream is close at hand.
One of the major arguments from gold bulls over the last 10 years has been that bullion prices will rise as gold becomes recognised amongst a wider range of investors as a legitimate option for protecting wealth.
This “mainstreaming” has been sped lately by a number of investment instruments allowing buyers to own physical gold without the hassle of storing the metal. Most notably, exchange-traded funds (ETFs).
ETFs have become an important force in the gold market. And now it appears they may be doing same for platinum.
2010 saw the launch of the first ETFs holding physical platinum, in both the U.S. and Japan. Giving investors an easy way to own “the other precious metal”.
And investors have lately been giving these funds a lot of love. While investment flows into gold and silver ETFs have turned negative over the last few weeks, money continues to flow into platinum funds.
The result being that open interest in platinum on global exchanges is running at record highs. On Monday, open interest in NYMEX platinum jumped nearly 5% to over 38,500 contracts. Open interest has been rising steadily since the beginning of March.
Adding up ETF holdings of platinum (running near 935,000 ounces), plus open interest on the NYMEX and TOCOM exchanges, platinum long positions are at an all-time record.
This buying has been good for platinum prices. The metal has risen 7% since late February, from US$1,500 per ounce to over $1,600.
But this is a situation that needs careful monitoring. ETFs and other mainstream investments can be a double-edged sword. It’s great when investors are piling in and driving up prices. But the price can go the other way equally quickly if the winds of sentiment change and holders start selling.
One thing is certain. More ETF investing will mean more volatility. This is already showing up in the palladium market, which also saw new ETFs introduced recently.
Palladium open interest on the NYMEX spiked in late February. Then plunged 10% in early March. But over the last two weeks, buying has once again surged.
Getting these metals in front of a wider audience has potential to create a lot of buying. Just beware of the trade going the other way.