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Today's New Case for Platinum?

John has been interested in economics and politics since high school. He follows it closely so as to make measured personal investments.

Cautionary Note!

The author is not an investment advisor. The purpose of the article is to discuss possibilities for future platinum appreciation. All of the rationale for platinum being a good investment is speculative. Discuss any potential investment moves with a professional.

Is Platinum Undervalued?

It's hard to know how much the average person tracks precious metal prices. If you are an investor who has been living under a rock, maybe you missed it, but gold recently hit a new all-time high. Even individuals unfamiliar with current events often know gold has been in a bull market.

Gold hit $2016.15 at the close on August 7, 2020 ($2074.25 intraday). That's fairly amazing for an ounce of anything!

But what about platinum, which has been historically priced higher than gold? On March 4, 2008 platinum reached $2250 an ounce. As of this writing, platinum is $946 an ounce. Is platinum undervalued?

Platinum Is Rare

Platinum is extremely rare. An Olympic swimming pool is 50 meters long, 25 meters wide, and at least 2 meters deep. If you melted and poured all the platinum ever mined into such a pool, the metal would only be 6 inches deep. Platinum is also 30 times rarer than gold.

I support any procedure that allows photographers to express themselves, whether that involves color, black and white, platinum, palladium and digital technology.

— John Sexton

Central Banks Do Not Store Platinum as They Do Gold

But the market determines price. With the world facing ever increasing levels of debt, the price of platinum has fallen. Platinum is not viewed in financial circles as money the way gold is. For one thing, central banks around the globe have been purchasing lots of gold. Why? Even if currency cannot be exchanged for gold any more, a ratio of gold to outstanding currency is required to maintain faith in a currency.

Obviously, gold stocks induce confidence in currencies because gold is perceived as money. Perceptions of platinum are not the same.

No platinum is held at Fort Knox, although the U.S. Mint does make platinum coins: ¼ ounce, ½ ounce, and 1 ounce.

As of August 25, 2020, world gold holdings were as follows:

Gold Reserves By Country

Source: USFunds.com, "Top 10 Countries with Largest Gold Reserves." Aug. 25, 2020.

CountryGold Reserves Held by Central Bank (in tonnes)

United States

8134

Germany

3364

Italy

2452

France

2436

Russia

2300

China

1948

Reasons Why the Price of Platinum Went Down

In addition, investors liquidated platinum recently to build up cash when they felt the market would crash. On top of that, alternative metals have replaced platinum in some technologies. Since 2011, there has been a steady decline in the price of platinum.

We believe ongoing efforts in product development through global partnerships, plus platinum's discount to gold will support continued, solid, retail investment in (platinum) bars and coins.

- Paul Wilson, World Platinum Investment Council

Reasons Why the Price of Platinum Might Rise

So what are the chances of platinum rising in value in the not too distant future?

One possibility is that if inflation roars its ugly head, investors may look to discounted precious metal as a store of value, resulting in increased demand and an increase in value.

Another possibility is that car manufacturers may start using more platinum in catalytic converters. Catalytic converters came into use in automobiles in the '70s as air pollution became an intolerable problem. The role of platinum in catalytic converters is to oxidize carbon monoxide (CO) and hydrocarbons. Platinum is particularly effective at this under oxygen-excessive conditions.

Platinum use got so expensive that converters were built with palladium coatings to cut down on cost. But as of 2019, after the price of palladium had risen to twice that of platinum, car manufacturers were contemplating going back to platinum. This will give the reader an idea of how the price of industrial metals can fluctuate. With the possible replacement of palladium with platinum in converters, readers have a good reason to think platinum's value may rise.

If our economy continues to recover, platinum prices could shadow stock market appreciation.

Furthermore, if fuel cell technology continues to advance as it has, the future of platinum may be bright. Fuel cells need no recharging and will run indefinitely when supplied with fuel. The cells produce electricity by combining hydrogen (the fuel) and oxygen (from air) over a catalyst such as platinum. If you are a Nikola truck enthusiast, this could be another aspect of your investment thought with regard to platinum.

Platinum Could Recover From the Diesel Emissions Control Scandal

Beginning in 2014, Volkswagen became embroiled in a controversy over a device that utilized software to adjust emissions when emission control tests were performed. The result was a precipitous loss of sales for diesel engines in vehicles, while the drop in truck orders really affected platinum use.

Diesel trucks use more platinum because of the configuration of the catalytic converters. Diesel trucks use a special catalytic converter and muffler combination. The converter and muffler are tied together. This large apparatus connected to the exhaust pipe cuts down on pollutants and noise at the same time. But due to its size, there is more inner coating of the converter/muffler combo.

Because a new model of diesel called the Euro 6 has managed to enable diesels to achieve required government emissions, they still have a way until easily accepted. It is hoped that as improved diesel engines come to market, more people will purchase them across the world, and hence, platinum production and price will increase.

It's A Big One!

A school bus catalytic converter

A school bus catalytic converter

Could Mining Keep Up?

Because of decreased demand for platinum, companies mining platinum have invested less in their mines. Even given the chance that increasing demand for platinum will accelerate appreciation of the commodity, it will take quite a while for Russia and South Africa to significantly increase platinum production. Palladium is currently twice as expensive as platinum.

The Future of Platinum Use and Price

Platinum is a precious metal and an industrial metal. Its value fluctuates according to the demand for it in the manufacture of electronic components. Autonomous driving, additive or 3D manufacturing, generative design, and the smart factories of Industry 4.0 will continue to necessitate platinum's use. Should many demands from industry outpace the production of platinum, and palladium for that matter, the market and retail price of platinum stands to rise. But given the state of production in the world, it's hard to say when this might happen.

A Contrary Opinion

Sources

Fuel Cell Today. (n.d.). Hydrogen Europe's Pillars. Retrieved October 14, 2020.

Alison Cowley. (2019, May 19). PGM Market Report. Retrieved October 15, 2020.

Platinum Asset Management. (2018, February 28). Investing In the Fast Changing World of Digitization. Retrieved October 15, 2020.

Macrotrends. (2020, November 18). Platinum Prices - Interactive Historical Chart. Retrieved October 16, 2020.

USA News Group. (2019, October 14). Use of Palladium in Catalytic Converters Driving Demand For the Precious Metal. Retrieved October 16, 2020.

Tim Treadgold. (2019, March 6). Platinum in Focus as Makers Switch from High Priced Palladium in Exhaust Systems. Retrieved October 17, 2020.

Dylan Stuart. (2015, August 21). Diesel Vehicles to Play Big Role in Future Platinum Demand. Retrieved October 17, 2020.

Barry Lenson. (2014, April 21). What Is That Huge Catalytic Converter You Just Pulled off a Truck or Bus? Retrieved October 18, 2020.

Russell Hotten. (2015, December 10). Volkswagen: The Scandal Explained. Retrieved October 19, 2020.

Wikipedia. (2020, November 6) Platinum. Retrieved October 19, 2020.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 John R Wilsdon