Platinum’s Long Term Value Play Today

Platinum is presenting a unique opportunity right now, an opportunity which ultimately could add free ounces to that stack of bullion….

Below are some current details on platinum investing fundamentals.

Meet Platinum: A not very well understood precious metal

Gold and silver are the most widely known precious metals, and the most common metals held for financial investment purposes.

They are “precious” metals because they are very rare, unique elements, and they are very important, in both industry and as investments.

Platinum is also a precious metal, and platinum bullion above ground is even more rare than gold or silver. In fact, over the centuries, it is estimated that the world has mined about 18 times more gold and 150 times more silver than platinum.

To visualize how rare platinum is, check out this infographic’s illustration below:

 

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That’s not a lot of platinum when compared to gold or silver. We could literally stick the world’s entire physical platinum supply in this office I am typing in (a little larger than an average two car garage).

Platinum, like gold and silver, has both industrial uses and more recently too usage as an investment vehicle.

Below is the World Platinum Investment Council’s head talking shop at this summer’s Sprott Conference in middle July 2018. Since then the platinum price has dropped and got even cheaper.

Physical platinum is a relative newcomer onto the monetary metals scene, but taking in consideration it’s scarcity, platinum has generally been more expensive than gold over the years.

This all changed during the global financial crisis of 2008, when the entire world entered into recession. The demand for physical platinum to be used in industry fell off a cliff. Gold, being a more traditional monetary safe haven and store of value, overtook platinum in pricing after the 2008 crisis.

After the run-up in the metals in 2011, all of the precious metals have been in a bear market ever since, with a possible price bottom in most of the precious metals taking place in December of 2015.

After an initial run-up in prices in early 2016, the metals have been trading sideways and to the downside, and because of this, platinum is presenting a wonderful opportunity.

Why?

Because ever since futures trading began in the 1970s, platinum has never been cheaper to gold than it is right now:

 

 

In other words, there is a potential arbitrage play for investors who chose to take advantage of this divergence, in that ounces of gold, or currency savings, can be converted into physical, investment grade platinum, and because platinum has never been cheaper when compared to gold, more ounces of platinum can be stacked, dollar for dollar, or ounce of gold for ounce of gold.

This would be a long-term play, because it is based in the metals reverting to their historical norms and platinum ultimately catching-up to and out-performing gold.

 

Is that likely to happen?

It is very likely to happen. In fact, earlier this year, the Department of the Interior published a list of 35 mineral commodities that are considered “critical to the economic and national security of the United States”.

Platinum was one of the unique elements that were placed on the list, though gold and silver were not placed on the list.

What this means is that platinum is considered very important for the US economy, but it is an element that could become hard to source because of things such as geo-political tensions.

You see, most of the platinum that is mined in the world comes from South Africa (over 70% actually), and the concern is that depending on the politics within the African nation, supply could become disrupted, making platinum harder and more expensive to source. In fact, the newly elected government of South Africa is moving forward with a land expropriation plan in which lands will be confiscated from certain landowners and redistributed to others as a way of making amends for apartheid.

Rounding out the top three producers of platinum would be Russia in second place and Zimbabwe in third. Canada and the United States are the fourth and fifth top producers of platinum respectively, but output from the North American nations is much lower than that of the top three platinum producing nations:

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To help investors better understand investing in platinum, a video has been made which covers the fundamental factors for this precious metal:

 

Drilling down into the specifics with platinum

Platinum is a precious metal that is used for both industrial purposes and for financial investment purposes.

Why is platinum so useful in industry?

Platinum has many unique properties that other metals do not have, or platinum simply performs better than other metals in certain areas, and the combination of the unique properties of the metal make it ideal for certain applications. For example, the melt point for platinum is very high at 1773°C or 3224°F when compared to other metals and a major reason why platinum was only recently discovered by alchemists. Humans have only recently been able to produce fire conditions hot enough to melt, refine, and identify platinum properly. Additionally, platinum has extraordinary resistance to corrosion and tarnish and it is the least reactive metal. Platinum is also perhaps as highly ductile as gold, making those two precious metals most able to be stretched into a thin wire without breaking. Platinum can be drawn and reduced down to a wire with as thin as a 0.0006 mm diameter.

When it comes advantages for investment purposes, platinum is more scarce than both gold or silver, but that is not all platinum has to offer. Not only is platinum more scarce, but it is also more dense than gold or silver. This means that platinum bullion items simply take up less space when stowed away than either silver and even gold. If space is an issue, platinum has it covered.

Many private mints and sovereign mints around the world now produce platinum bullion products.

The United States Mind, for example, within the bullion coin program, has the Platinum American Eagle bullion coin:

 

The American Platinum Eagle is a 1 ounce, .9995 pure platinum coin with a $100 face value.

Bars are also popular when it comes to investment grade platinum bullion. Platinum bars can range in weight, and typically come in 1 gram, 1 ounce and 10 ounce weights.

For example, Pamp Suisse mints a 1 gram platinum bar that comes in sealed in an assay:

 

The 1 gram bar is also .9995 fine, and the low weight can benefit investors who would like to begin investing in physical platinum bullion, but do not want to purchase an entire ounce.

 

The outlook for platinum is good

Many experts agree that the precious metals bottomed in December of 2015 have have been in a consolidating pattern ever since.

Platinum has not kept up with the other precious metals, such as with gold, shown below, and platinum recently put in a new, lower-low:

 

 

If the experts are correct, however, and we are nearing the end of a seven year bear market and beginning a new bull market, platinum has a lot of room for upside potential, and because of the rareness of platinum, there is very high probability that platinum begins to out-perform gold to the upside in price.

Remember too that the most major secular bullion bull market top of 1980 had all four precious metals hitting respective nominal price highs within months of one another (gold and silver first in late January 1980, platinum and palladium followed shortly after).

 

 

You might argue that the 1970s 1980 peak was a greed driven mania, but there were certainly also fears of US dollar failures back then as well.

If we get into another situation where the value of the US dollar comes into question, it is again likely that the spot prices for all four precious metals will likely go exponential again.

 

Coming full circle on the arbitrage play

As shown earlier, dollar for dollar, investors can get more bang for their buck (or gold) in platinum.

If the new bull market plays out the way many of the experts suggest it will, then investors can look forward to many years of upside price growth. It is during that time, at which platinum outperforms gold, that dollar for dollar, and platinum for platinum, investors can turn those platinum ounces back into gold ounces in the arbitrage play and increase their precious metals holdings, in ounces, essentially free of charge, by taking advantage of the pendulum swings in the metals and the reversions to the historical means.

Being properly positioned for the swings is a way, over long periods of time, to add ounces for free, and right now, platinum is presenting one of those opportunities.

Platinum may be lesser known, but the potential gains with platinum means that now is a great time to get to know this very rare, investment grade precious metal.

Stack accordingly…

– Half Dollar


 

About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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