Oxstones Investment Club™by Myra P. Saefong, Market Watch,
Move over gold and silver — it’s time for platinum to start getting the attention it deserves as a precious metal.
Year to date, gold prices have scored a climb of 14% and silver’s gained 29%. Platinum prices, however, trade just 1% higher, so while gold and silver have proven their worth as stores of value in these uncertain economic times, platinum has been left in the dust.
That’s not so tough to make sense of, knowing that investors view gold as a monetary asset and platinum is most well known as an industrial metal.
But “all three metals have a history of money” said Nick Barisheff, president and chief executive officer of Bullion Management Group Inc. “While gold and silver have been used as money for thousands of years, platinum too has served as an economic store of value for over 300 years.”
Platinum is also worth more than gold and it’s tougher to produce.
At $1,792 an ounce, platinum (PLQ11.NYM – News) is worth nearly $200 more than gold (GCQ11.CMX – News) at $1,616 an ounce and it costs 45 times more than silver (SIQ11.CMX – News) at $40.
It takes about 10 tons of ore requiring six months of mining to produce a single ounce of platinum, according to Barisheff, who points out that platinum is 30 times rarer than gold. Since 1997, demand for the metal has exceeded mine production and global demand has continued to record highs in 2011.
“Platinum is the rarest of the precious metals and its price reflects this” said Barisheff.
The metal also offers investors the opportunity to diversify their precious metals holdings.
“The precious metal component of a properly diversified portfolio should include an allocation to platinum” said Mark O’Byrne, executive director at international bullion dealer GoldCore. “Full diversification within the precious metal group is important in order to reduce volatility.”
Besides, “the only asset class that is better than gold as an inflation hedge is a basket that includes silver and platinum” he said, adding that platinum may even be a better inflation indicator than oil.
And given the scale of currency debasement being seen in the U.S. and globally, platinum’s inflation-adjusted high of about $3,000 an ounce should be reached in the coming years, he said.
Unpopular Precious Metal
Even so, platinum hasn’t been winning any popularity contests in the precious metals sector lately — at least not as a monetary asset — for lots of good reasons.
James Turk, founder and chairman of GoldMoney, said that of the $1.8 billion of gold, silver, platinum and national currencies held by GoldMoney’s customers, only $15 million is platinum.
“So platinum is not popular” but it’s also not neglected, he said. “Rather, it is just not liquid nor is the market as deep as gold or silver … The big hedge funds and other institutions rarely buy platinum because the market is so thin” said Turk.
And given that it’s a thinly-traded market, it is also the most volatile of the precious metals, said James Carrillo, account executive at precious metals investment firm Swiss America Trading Corporation.
Platinum’s industrial ties can also feed erratic moves.
Platinum’s used as a catalyst in factories and automobiles and its use in jewelry, electrical, chemical and petroleum industries has been rapidly growing. “All of these industries  are subject to economic volatility” and as economies slow, so will platinum demand, said Carrillo.
When compared with gold and silver, “platinum is the rarest, but first and foremost an industrial metal” he said. “It has very limited supply, therefore it will move up or down very quickly with much less buying and selling volume” than gold and silver.
Gold and silver “tend to see larger inflows from speculators looking to hedge against currency or macro-event risk such as sovereign debt default” said Tim Murray, general manager of precious metals marketing at Johnson Matthey (JMPLY.PK – News) .
Platinum has also suffered from concerns over global economic growth and industrial and auto demand in the aftermath of Japanese disasters, he said.
Barisheff said sentiment understandably turned negative toward platinum following Japan’s March 11 earthquake and tsunami given that it’s primarily used in the manufacture of catalytic converters and “Japan’s car industry was, in the short term, decimated.”
Platinum futures dropped by more than $80 an ounce from March 11 to March 16.
The outlook for U.S. auto makers has been disappointing as well.
U.S. auto makers will release sales data for the month of July on Tuesday. They’re expected to show only slight improvements as limited inventories and high gasoline prices have kept the drawn out recovery in check.
Opportunity Knocks
But for platinum prices overall, things are starting to look much better.
On Monday, Toyota Motor Corp. (NYSE: TM – News) said domestic output at Japan’s biggest car maker by volume fell 15.9% in June from the previous year, but that was a much narrower decline than the drop of 54.4% in May and April’s 78.4% plunge. That’s important because platinum’s widely used in automotive catalytic converters.
Domestic auto output at Honda Motor Co. (NYSE: HMC – News) also saw a narrower decline and Nissan Motor Co. (NSANY – News) reported a rise in output.
Consider, as well, the risks associated with how concentrated platinum production is in the world.
Bullion Management Group’s Barisheff said 80% of the world’s annual production of platinum and 88% of the world’s platinum reserves come from South Africa, so any instability in that region could “greatly affect” the platinum price.
And right now, according to Murray, “most of the major South African producers are facing the threat of work stoppages over stalled wage negotiations and threats to electricity supply due to labor strife in the South African coal mining sector have raised fears in a region that accounts for a dominant share of the world’s platinum production.”
In addition to supply risks and potential gains in industrial demand, investment demand is seeing strength too.
ETFS Physical Platinum Shares (PPLT – News) , an exchange-traded fund that holds the precious metal in a vault rather than investing in futures contracts, has climbed about 15% over the past 12 months.
Investment in physically-backed platinum products, as measured by ETF holdings that are available to the public, is up about 20% from the start of 2011, said Murray.
Overall, “we are seeing recovery in demand from the battered Japanese auto sector, Chinese demand remains robust and ETF investment demand is steady” he said.
So the factors are lining up to form a promising outlook for platinum, along with gold and silver.
“Today we are seeing another financial crisis, which is the cornerstone for the decade-long run in all three precious metals: gold, silver and platinum” Barisheff said.
And while the tragic events in Japan has dented the allure of platinum temporarily, “it won’t last forever and investors should take advantage of this respite before it is too late” he said.
Tags: auto industry, China, ETFs, ETFS Physical Platinum Shares (PPLT), gold, industrial metals, Japan, limited supply, platinum, precious metals, silver, south africa