- January 25, 2017 -
If your motivation for buying precious metals is primarily for speculative reasons, may I suggest that you consider platinum bullion? Despite platinum being less liquid than gold and silver as well as the higher buy/sell spread associated with physical platinum, the argument could be made that platinum currently offers more profit potential than gold.
Many investors are familiar with the gold/silver ratio and that the ratio recently suggested that it was time to buy silver. But platinum, the “rich man’s gold,” has also seen its price fall relative to gold.
In fact, platinum is now cheaper than gold, an extremely rare occurrence over the last 100 years. That fact alone suggests that platinum should outperform gold over time.
Platinum is the world’s third-most actively traded precious metal and there is substantially less of it than either gold or silver.
Platinum is arguably more useful than gold. It is used in jewelry, LCD monitors, dental equipment and has strategic and military related uses as well.
Increased defense spending under the Trump administration would likely increase demand for platinum and have a positive impact on its value.
However, the most significant source of demand is the auto industry. It uses about 40% of the global supply, primarily in the manufacture of catalytic converters.
Platinum prices fell over 25% in 2015 while effectively breaking even in 2016. Both gold (up 6%) and silver (up 16%) outperformed platinum in 2016.
Supply and demand ultimately determine commodity prices so it’s important to understand how much platinum is available and how much is needed. Platinum is quite rare, so the supply is very limited.
That explains why it’s historically been so expensive. Although figures are not yet available for 2016, approximately 6 million troy ounces of platinum were mined in 2015, a nearly 20% increase over 2014 figures and a five year high as well.
To put that figure in perspective, approximately 102 million troy ounces of gold were mined in 2015. The amount of platinum mined in 2016 was anticipated to be about 5% less than 2015 due to less production from South Africa.
South Africa accounts for roughly 70% of the world’s supply of platinum while Russia and North America account for most of the balance. This decrease in production may be offset by platinum recycling, mainly by the jewelry and auto industries.
The net result is that the above ground platinum inventory is expected to trend slightly lower in 2017 as it has from 2012-2016.
However, an increase in demand for platinum has been predicted for 2017.
Noted refiner and catalytic converter manufacturer Johnson Matthey recently issued a report forecasting a 2% increase in platinum demand for the automobile industry and a 5% increase in platinum demand for all other industries.
An approximate 800,000+ troy ounce platinum shortfall is anticipated this year, somewhat higher than prior year’s shortfalls.
2017 will be the sixth consecutive year that annual demand exceeds the amount of mined platinum for the year. Above ground platinum holdings are confirmed to be in decline based on published statistics from all known platinum databases.
With more platinum demand than supply, and prices at historic lows compared to gold, don’t be surprised if platinum outperforms gold over the short-medium term.