Platinum: The Best Buy in the Metals Sector
Precious metals are often misunderstood in the investment world.
Most consider the three big metals – silver, gold, and platinum – interchangeable, since they tend to rise and fall as a group.
But these metals are not created equal…
Of the three, platinum is the rarest and most valuable. Yet trying to convince investors to buy platinum is like pulling teeth.
Everyone wants to stick with the more familiar metals – gold and silver.
But it’s time to stretch your boundaries. Right now, platinum is trading for less than the price of gold – and it’s sure to move higher soon!
Are you brave enough to step outside the box before time runs out?
Who’s Most Precious?
Silver is often referred to as the “poor-man’s gold,” as it trades at a fraction of the price of gold and can move furiously to the upside when the entire metals sector is moving higher. It’s also the most abundant of the precious metals, and is used in both industry and for jewelry and investment.
Gold is the granddaddy of all precious metals, of course. It has little industrial usage, but a very strong following as a pure proxy for holding wealth in the form of cash. Gold has proven, over time, to be able to hold its value and even increase in value during times of financial distress. In terms of jewelry, gold has no peers.
From a supply point of view, gold is not as abundant as silver, but it is far more abundant than platinum.
Platinum is the rarest of the three most popular precious metals. It has a wide range of applications, from industry to jewelry. Yet, it hasn’t made the cut in most people’s minds as a metal that can be used as a proxy for money, like silver or gold.
Still, of these three metals, platinum arguably presents the best potential upside from current levels.
Platinum Supply Not Quite There
Seventy percent of the world’s platinum is mined in South Africa. Unfortunately, the country is subject to immense political and civil unrest that frequently causes production to be unpredictable.
Even so, the supply of platinum is critical to economic growth as its uses are tangible. This is particularly true in the automobile industry, where it’s a primary component of catalytic converters used to convert toxic by-products from exhaust into a less-toxic final output.
Over 46% of the platinum that’s consumed every year is used in catalyst operations. A further 31% is used for jewelry, and the rest for minor industrial usage. In total, around 250 tonnes of platinum is used annually.
But supply has not kept up with this demand. Platinum production has averaged less than 250 tonnes annually over the past two decades.
This shortfall in production versus consumption has often led to price spikes that have allowed platinum to trade at levels between 10% and 30% over the price of gold.
Today, though, that premium doesn’t exist. We’re witnessing one of the few times in recent history when platinum prices are trading at a discount to gold prices.
The reason is two-fold. First, industrial demand is lower than in the past as the world claws its way through a recessionary period.
And second, the lure of platinum as an investment metal has faded, as the prices of gold and silver have fallen dramatically from their highs.
But things are starting to look up…
Platinum Demand Will Rise Again
Globally, economies are once again re-flating in hopes of stimulating stronger growth. The United States, for example, has been printing money for the better part of the last decade. And the fruits of that exercise are now ripening, as sales of autos and homes are once again rivaling the numbers pre-recession.
There are indications that the eurozone is also seeing nascent signs of recovery, too, as a result of the massive quantitative easing that’s taking place over there.
The rest of the world, emerging markets in particular, have not yet joined the growth parade. Economies like China’s are beginning to slow. Yet, efforts are underway to stimulate growth there, as well.
If these efforts succeed, as they have in the United States, global demand for platinum will pick up again as industrial applications require the metal.
Combined with continued strikes and mine disruptions in South Africa, the outlook for the metal could not be better!
And, for one of the few times in recent memory, you have the opportunity to buy platinum at a discount to the price of gold. A discount that has rarely lasted for more than a few months in the past…
And the chase continues,