Is it Finally Time to Buy Platinum?

Spanish conquistadors came to the Americas in search of gold and silver. And they found plenty.

But while they were mining, they occasionally found a strange silvery metal unlike any other. They called it “platina”, meaning “little silver”.

At the time, they believed this “platina” was young gold that would take a few more thousand years to mature and turn yellow. This platina was difficult to work with, however, so it was essentially worthless for a long time.

Fast-forward to today and platinum is a critical industrial precious metal. But it’s been in a bear market for more than a decade and is often overlooked by investors.

Here’s why it may be worth a look now…

Where Platinum Fits In

During precious metal bull markets, gold hogs the spotlight early on.

Silver lags behind at first, but often surpasses gold as the bull cycle progresses.

Where does platinum fit into this picture?

Platinum is a primarily industrial precious metal. It is far more scarce than gold, with total annual global production at around 179 tons compared to gold’s 3,300 tons.

Platinum is mostly used in catalytic converters, the part of a vehicle’s exhaust system which transforms toxic gases into safer ones. Platinum group metals have the rare ability to transform nasty exhaust products such as carbon monoxide into inert ones like carbon dioxide.

Interestingly, platinum is not “consumed” in this process. It is simply a catalyst with the ability to convert compounds. A very unique type of metal.

The platinum (and palladium) content is why catalytic converters are stolen from cars so frequently. It’s a quick way for a thief to make a few hundred bucks.

Platinum is also used in a wide range of industrial processes including chemical, petroleum, and medical applications.

Platinum is widely used in jewelry, which accounts for about 24% of demand. It is the hardest precious metal, and resists scratches and weathering well.

Only about 10% of platinum demand comes from investors. But at today’s depressed prices, this overlooked asset is intriguing.

Bargain, or Staying in the Basement?

Currently platinum trades at $982 per ounce. For a long time, it traded at par with gold, or even at a premium. The chart below shows the gold/platinum ratio, which is currently at a whopping 3.429 ($3,391/oz gold vs $982/oz platinum).

As you can see, gold has absolutely trounced platinum over the past 15 years.

Part of the reason platinum has fallen so far is due to the rising use of palladium, a similar metal, in catalytic converters.

Today both platinum and palladium are used in catalytic converters. Palladium is more common in gasoline engines, and platinum in diesel systems.

Part of the reason car makers switched to palladium was that it was a far cheaper option. But today they trade around the same price, so that advantage has diminished. Some auto companies are now switching back to platinum, but it takes a long time to shift supply chains and manufacturing equipment.

Regardless, diesel engines alone will prove steady demand for platinum for the foreseeable future.

Political Instability

Roughly 75% of the world’s platinum comes from South Africa, one of the most unstable political regions in the world.

If the South African government seizes control of platinum mines, or a civil war breaks out, the price of platinum could absolutely explode higher.

Russia is the second-largest producer of platinum, and with sanctions and trade wars, this important source of the metal could also be at risk.

If you’re making a bet on platinum today, one of the primary catalysts for price appreciation is political instability. Reserves and supply are highly concentrated in volatile regions.

The poor performance of platinum group metals over recent years has also limited new mines and development projects. New mines typically take at least a decade to get up and running, so this lack of new projects over the past 15 years could benefit prices in the years to come. As Rick Rule famously says, “the cure for low prices is low prices”.

Of course, there are other potential catalysts for platinum to rise. If we see a full-on precious metal mania (we haven’t yet), at some point this will spill over into the platinum group metals. With such a small supply, just a bit of additional investment demand could push prices far higher.

Additionally, over the long run, it seems inevitable that additional industrial uses for platinum group metals will be found. These metals have extremely unique properties unmatched by other materials.

How to Buy

Any reputable precious metal dealer will offer platinum coins and bars. These are a nice option if you have a secure place to store them. Be sure to shop around and look for the lowest price over spot you can find (while ensuring you’re dealing with a reputable company).

There’s also the Sprott Physical Platinum and Palladium trust, which trades under ticker SPPP. This gives you direct exposure to both metals, which are held in storage by Sprott, a very reputable name in the precious metal space.

There are also publicly-traded platinum and palladium miners, but most of these are too small to mention here. Plus, they almost all operate in risky political regions like South Africa. Those are definitely not for the faint of heart.

Bottom line: if you have a contrarian streak and patience, platinum makes a nice speculative investment here.

It makes a nice addition to any precious metals portfolio, but needless to say, platinum should only be a small allocation. The vast majority should remain gold and silver.