Platinum has had a terrible few years, right now it is at the same price as it was in 2003. But that could soon change. Today I'll talk about what has been, to put it mildly, one of my weaker market calls of recent years. That is platinum. I've invested a little in the white metal myself, through #mene jewellery.
Currently, the platinum price sits at around $870/oz. It was $870/oz, a full 17 years ago, in 2003. It’s hard to think of a single asset in the world that costs the same as it did in 2003.
Think of all the inflation that’s taken place since then. A 2003 dollar is very different beast to the 2020 version. Indeed, I read somewhere the other day that 22% of all the US dollars in existence were created just this year.... That money printer is really going “brrrr”, but barely a cent of it is going into platinum and I find that strange.
Platinum enjoyed an extraordinarily good run in the noughties. It was one of the commodities of the decade, going from a low of around $400/oz in 2001 to a high of $2,285/oz in 2008. It crashed along with everything else in 2008, rebounded to just shy of $2,000/oz in 2011, and ever since it’s been in what feels like interminable decline. Saying that, all metals, whether base or precious, had a woeful time after 2011. But what really did for platinum was the Volkswagen diesel scandal of 2015.
Platinum’s main use is in catalytic converters for diesel engines; before the scandal hit, more than half of annual demand for platinum came from the automotive industry. The scandal, if you remember, was that Volkswagen, which had been trumpeting the low emissions of its diesel engines for many years, was found to have been cheating the tests. By installing a “defeat device” (software designed to pass regulatory lab tests) it had faked emissions levels in some 500,000+ vehicles it sold between 2006 and 2015. In real-world driving, it turned out the emissions were several times the permissible limits. There followed a change in attitudes towards diesel vehicles, and the big loser has been platinum.
Platinum has spent most of the years since ranging just below the $1,000/oz mark. Then, in the corona panic of March, it got absolutely obliterated, hitting a low of $560/oz. But since then, riding on the coattails of gold, palladium and silver, it had a good summer, going above $1,000/oz, before slipping back to today’s price of $870/oz.
The case for platinum is the same as it was a couple of years ago: it is extraordinarily cheap relative to everything else. We think of platinum as being more valuable than gold, for example. A platinum credit card ranks higher than a gold card. In the record industry, you’d rather go platinum.
Historically, because platinum is rarer and more expensive to mine, it tends to trade around 1.25 times the gold price. Presently, however, platinum is not even half the price of gold. It’s extraordinary, and in ten years time I expect it will look obvious that platinum is “too cheap” and offers an exceptional opportunity.
The thing is, I said that a few month ago, as I expected prices to rise much higher than they did. That’s the problem with the logic of value investing, it can require a lot of patience. But if we do get a reversion to the mean, and gold stays at $2,000, then platinum will go to $2,500 – a triple from today’s price of $870. And in 2008, platinum was double the gold price. That’s what is possible, and that's what I hope to happen.
You could also compare platinum to palladium as well. Historically, palladium tends to trade around half the platinum price. With platinum at $870/oz you’d expect palladium to be somewhere in the $400s. But it’s trading at $2,375, almost three times the platinum price. Palladium is even at a 25% premium to gold, which is where platinum “should be”. Palladium is used in petrol-engine catalytic converters. There is no easy substitute. Demand has remained strong; supply has been constrained. Thus do we have its price.
But, on a value basis, I look at platinum and I think this is not a question of “if”, but “when”. Roughly 40% of annual platinum demand still comes from the automotive industry. Another 30% or so is from jewellery. The rest is from its other industrial uses, especially in medicine, chemistry and glass. Investor demand is tiny, at around 3%.
Total platinum demand is likely to be around 11% lower in 2020 than in 2019, according to the World Platinum Investment Council’s latest quarterly report. However, supply – most of which comes from South Africa – will fall by 14%. Yet despite the fact that this market seems to be perennially in deficit, platinum resolutely refuses to catch a bid. But it won’t take a lot to move it. A change in narrative will wake up investors, and increased investor demand could put some fuel under the price.
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