While platinum prices may tempt you at current levels, there is a reason for pessimism in this precious metals market.
Unlike gold and especially silver, where demand equals and will soon outstrip supply, platinum is plentiful. Demand is falling or static.
There are labor problems in the world’s biggest production market, South Africa, but even that uncertainty cannot fuel a bull run on the precious metal once called “richer man’s gold”.
Gold is the New Richer Man’s Gold
Platinum is now cheaper than gold. While we see a lot of upside potential in gold, and even more (percentage-wise) in silver, the unique problems facing platinum are not going anywhere.
Here are some reasons why we can’t recommend platinum.
Industrial Demand
During a global recession, demand for industrial materials tends to slow. Platinum was previously so expensive that a lot of research and development focused on how to replace it with the much cheaper palladium.
This was so successful that platinum prices have fallen, and palladium prices have leaped up.
The main use for platinum was in catalytic converters in cars. Palladium has replaced the need for platinum in gasoline-powered vehicles. Diesel-powered vehicles still need platinum, though there are new technologies in the pipeline that will allow palladium to be used there too.
The market share for diesel vehicles is growing, and to keep costs down, manufacturers are pushing for palladium use in catalytic converters. This is not good news for people who are bullish on platinum.
Of course, the global downturn (in some places a full-blown depression) does nothing positive for the demand for vehicles.
Investor Demand
The main reason that platinum doesn’t enjoy the same status as gold and silver is that it has never been used as a legal tender.
Gold and silver coinage formed the basis for the entire monetary system of modern civilizations. Even if today, since the 1971 repeal of the Gold Standard, we no longer back up our banknotes with gold, hand somebody a gold coin and they instinctively realize its worth.
Hand somebody a platinum coin (if you can find one), and their primary reaction will be confusion. It’s not silver, it’s not gold. It seems like something in-between. We “know” gold is worth several times the price of silver. Where does platinum fit into this picture?
Simple. It doesn’t. When markets are uncertain, gold and silver are seen as safer havens for money. Platinum cannot compete.
Further to this, speculative investors will not jump into the market anticipating higher platinum prices, because their principal demand (industry) is suffering from the worldwide financial crisis.
Supply vs Demand
Demand is flat, and there is plenty of supply. Platinum is a relatively small market, and it’s well-covered by mining output.
The two primary markets for platinum producers to sell to – the US and Europe – are struggling.
Investors don’t know what to make of platinum, and generally prefer gold or silver investing.
What all these means is, platinum prices are not expected to do anything spectacular in the short or medium-term. We recommend you mix gold or silver into your portfolio, but avoid the Richer Man’s Gold.