Platinum and palladium prices have hit 18-month highs leading to increased investor interest even as speculators quickly spotted these new precious metals to trade in and provide depth, liquidity and momentum to them in international markets like London. For the record, platinum is more expensive than gold and is currently trading around $1500 a troy ounce compared to gold which is a shade lower at $1,100.

Palladium currently trades in the range of $ 450. This investor and trading interest has led to increased coverage of these two commodities by precious metals analysts as also by media.

The launch of the first physical exchange traded fund (essentially a mutual fund which will track their prices) in the US has been the culmination of increased curiosity and fascination with these two pretenders to the bullion throne.

Unlike ETFs, which trade futures and/or options, physical ETFs will actually buy the metal from the market leading to real demand and, therefore, are more accurate in tracking the actual price. Then there is already talk of a platinum/gold ratio which has a ten-year average of 1.84 compared to its present value of approx 1.4 (down from 2.3 in 2004), which gives platinum room to rise over the medium term though that is not necessarily the only or the most pertinent factor to consider while making the investment decision.

But what?s so special about platinum and palladium? Well, to start with, the word platinum has a higher connotation than gold. So a platinum music album has surely outsold a gold one. Or your platinum credit card is a social notch higher than a gold credit card and typically with a higher spending limit.

From an investment standpoint, platinum and palladium are being considered as alternatives to investing in gold?rare metals whose prices are driven by the strength of the US dollar in a direction opposite to that of gold. Sure, they are exotic but returns are all that matter?it doesn?t make any difference what investment vehicle is used as long as the investment objective is met.

Those who missed the steep rise in gold price in recent years will feel tempted to look at these new investment commodities. But they should be careful; while gold has a 5000-year trading history, platinum was classified as a precious metal only some 250 years ago and a formal trading market is just a few decades old.

Besides, platinum is more like silver than gold ? it has several industrial uses in auto-catalysts (which is why it is also called an environmental metal), dentistry, electronics and medicine.

Platinum is very popular as jewellery in America even though it is more expensive than gold.

The demand-supply equation currently seems to be in favour of a price rise. Demand is rising on the back of industrial revival and supply is restricted to less than 1/10th of gold annually. Platinum coins too are not uncommon in America. Add the ubiquitous Chinese demand and you have a lopsided situation with high demand and low supply apparently begging for a price rise.

But it is also as much of a base metal as a precious metal and has shown high price volatility. In recent years, platinum has seen a high:low ratio of 3:1, more that what most investors can stomach.

Similarly, Palladium has been even more volatile over the same period. Then there is such a thing as taking portfolio diversification too far and I would not make a case for replacing your gold investment with platinum and palladium.

Adventurous traders also talk of a strategy of selling gold and buying platinum; it seems reasonable to those who feel that the US economy will recover leading to two effects?a stronger US dollar which will drive down gold prices and increased industrial demand (read cars), which will drive up platinum prices.

Finally, Indian investor interest has been lukewarm so far with limited volumes in platinum on MCX and palladium yet to be listed which means that while they may well be two hot metals on the horizon, only time will tell whether they are cool investments or too hot to handle.

(The author is president, Religare Commodities Ltd)