When most investors look at precious metals, the focus tends to be on gold and silver. The fluctuations in the pricing of gold and silver are often followed more closely by investors compared to metals like platinum and palladium. While gold and silver tend to see shifts in demand related to economic factors driving prices up and down, platinum’s recent changes have come as a result of changing demand sectors and continued scarcity. As you look at investing in precious metals, it’s important to understand some of the factors are set to impact platinum coins and bars in the years to come.
Changing Demand for Platinum
Historically, the jewelry and automotive industries have dominated in terms of platinum’s demand. While these two industries still account for 64% of platinum demand, the situation is shifting. Overall platinum demand in 2019 is expected to finish the year 9% higher than 2018. The biggest shift in demand has come in the automotive industry.
Traditionally, platinum and palladium have been used in the manufacture of catalytic converters if internal combustion engines to help cut down on pollutant emissions. However, palladium is typically used in gasoline engines while platinum works better in converters in diesel engines. Recent scandals involving emissions from diesel engines and growing fuel-efficiency standards pushed automakers toward palladium-based converters. The future may see a return to platinum though that could result in a price spike. For example, platinum-based fuel cell technology is expected to grow in the decades to come as more electric vehicles hit the roads.
On top of changing automotive demands, new uses for platinum are being found in the field of medicine. Platinum is a well-known cancer inhibitor and is used in a growing number of cancer treatment drugs. Additionally, platinum is the only metal used in pacemakers because of its ability to effectively penetrate sensitive tissues in the body.
Finally, investment demand in platinum has been growing as well. Demand for platinum among investors surged in the first half of 2019. That was driven by the largest first-quarter ETF gain ever recorded. Holdings have increased in an amount not seen since 2014 and did so at the fastest pace in a six-month period since physical ETFs were launched in 2007.
Continued Scarcity
There is a finite supply in the earth’s crust for all precious metals, but platinum is the rarest among the major precious metals. The estimated supply of platinum in the world is just 1/10th that of gold and 1/100th that of silver. If a scarce supply isn’t enough of a hurdle, most of the platinum is concentrated in one nation in a single mining complex. The Bushveld Igneous Complex in South Africa is home to an estimated 80% of the world’s platinum. Any instance of political unrest, social upheaval, labor tensions, or strains on mining resources such as power and water could pinch the global supply of platinum significantly.
Further complicating the access to platinum is the ease of access. While gold and silver is available in large above-ground stockpiles, there are no significant above-ground stockpiles of platinum that could help ease supply chain woes in the event of issues in South Africa.
Shrinking Supply Surpluses
As demand evolves and grows for platinum, and its known sources become pinched, there is also the issue of shrinking supply surpluses for platinum to consider. Most precious metals rely on a combination of plentiful mining and recycling sources to maintain a surplus between supply-demand. The past decade has seen platinum maintain a reliable supply surplus as automotive demand slid and recycling remained steady.
However, as industrial markets evolve and the demand for platinum in those niches grows again it will combine with increasing investor demand to shrink the surplus of platinum available each year. From 2018 to 2019, the supply surplus dropped by 50% from a surplus of 675 Koz in 2018 to 345 Koz in 2019. As demand continues to grow and recycling sources fail to cover the gap, platinum is expected to see its surplus shrink further and even slide into a deficit in the years to come.
Prices Improving for Investors
While the factors mentioned above could spell trouble for the industries covered earlier, it does set up investors to benefit. Platinum has, historically, traded higher than gold. In fact, when precious metals prices hit their most recent peaks during the Great Recession, platinum topped out well above gold around $1,992 per ounce in 2009. Today though, platinum is sitting near a multi-year low and has been trading for months now at a level roughly 55% to 65% that of gold.
This all sets up platinum as a potentially valuable long-term precious metal. Prices might be low now, but with low natural resources, the potential for supply disruptions, growing demand, and shrinking surpluses, platinum could turn out to be an excellent option for diversification in precious metals holdings.
Shop Platinum Bullion at JM Bullion
If are thinking of adding platinum bullion products to your holdings now while platinum prices are lower, JM Bullion has a variety of options. The American Platinum Eagle, Canadian Platinum Maple Leaf, British Platinum, and Australian Platinum coins all offer excellent options, as well as platinum bars from some of the world’s finest refineries. If you have questions about our available platinum products, please feel free to reach out to JM Bullion at 800-276-6508, chat with us live online, or email us directly.
