Nearby NYMEX October platinum futures were sitting at just below the $1000 per ounce level at the end of last week. In my Q2 report on Barchart, I highlighted that platinum fell 9.95% in Q2 and was 0.81% lower over the first six months of 2021. Nearby platinum settled at the $1072.90 level on June 30 and was lower on August 20.
Platinum is a rare precious metal and the namesake metal of the platinum group metals or PGMs. The vast majority of annual supplies come from only two countries, South Africa and Russia.
Platinum is an industrial and precious metal. It has many applications and also has a history as a store of value or financial asset. While precious metals prices have risen over the past year, platinum continues to lag the sector of the commodities market. At below the $1000 per ounce level, platinum is the least precious of the other metals that trade in the futures market on the CME’s COMEX and NYMEX exchanges. Gold, silver, and palladium have all made strides on the upside, while platinum remains weak compare to its precious cousins.
Platinum’s price action continues to lag the precious metals and commodities asset class
Platinum’s performance has been anything but precious over the past years. Since the turn of this century, the four precious metals that trade on the futures markets have had the following ranges:
Gold- $255-$2063
Silver- $4.026 to $49.52
Palladium- $145-$2985.40
Platinum- $433.10- $2,308.80
While platinum reached its peak in 2008, silver moved to the high in 2011, gold in 2020, and palladium in 2021. Platinum has lagged the other precious metals over the past years.
At the end of last week, palladium was above the $2275 level, gold was trading near $1785, and silver was above $23 per ounce. Platinum was sitting at the $995 level.
Platinum has a lot going for it other than the price
Platinum is the densest precious metal with the highest melting point, making it critical for industrial applications. Platinum’s high resistance to heat makes it a metal that cleanses toxins from the air in catalytic converters. Platinum is also used to manufacture jewelry, electrical contacts, pacemakers, drugs, and magnets.
Platinum is also a store of wealth as investors hold bars, coins, and ETF products. Platinum’s annual production comes from only two countries, and supplies are far lower than in gold, where production comes from all over the earth. Annual platinum output was around 170 metric tons in 2020. Gold output was around 3,000 tons, over seventeen and one-half times higher than platinum. Considering gold, silver, and palladium prices, platinum at below $1000 per ounce offers investors the most compelling value proposition. The demand is likely to rise over the coming years.
The green revolution favors platinum
As the US and the world address climate change and shift to a greener path to energy, platinum will play a crucial role, and the demand will grow. Platinum can be used in fuel cells for electric vehicles. The metal is also required in producing green hydrogen. Hydrogen is a cleaner and greener fuel that is likely to power the future.
Platinum’s low price has caused production to decline. Since 120-148 tons of platinum come from South African mines each year, the country producers 70%-87% of annual supplies. Platinum ores are deep in the earth’s crust, making production costs high. The low price over the past years has caused platinum mines to limit output. The most significant impact has been on rhodium, the physical PGM that is a byproduct of platinum output. Since 2016, rhodium’s price rose from $575 to over the $19,000 per ounce level at the end of last week. While platinum demand is increasing, future supplies may not keep pace with requirements over the coming years until the price moves higher. The critical element for the path of least resistance in the platinum market is investor demand, which remains weak.
Platinum is an illiquid commodity with an ugly past for investors
Limited annual supplies compared to gold has caused investors to shun platinum for more than a decade. Platinum has no liquid forward market, so there are no options contracts in the futures arena. The price action in 2008, the year platinum rose to its all-time high, left a bad taste in investor’s and trader’s mouths, causing them to avoid the metal as an investment vehicle.
The chart highlights platinum’s rise to a record peak at $2,308.80 in March 2008 and its plunge to a low of $761.80 seven months later in October 2008. The 67% decline in a little over half a year likely caused market participants to avoid the platinum market like the plague.
Over the past decade, platinum made lower highs and lower lows, falling below the $600 per ounce level in March 2020 when the pandemic caused selling in markets across all asset classes. However, platinum broke its pattern of lower highs in February 2021 when the price rallied to a high of over $1290 per ounce, where it failed to follow through and catch up with the other precious metals.
Physical ETFs offer an alternative to bars and coins
Investing in platinum requires patience. Just because platinum offers the most compelling value proposition in the precious metals arena does not mean the price is running away on the upside. Platinum has been disappointing investors for years. However, the platinum market’s illiquidity could eventually lift the price dramatically when it decides to move. Supply and demand fundamentals favor the upside, but the return of investor demand is the critical element that would fuel price appreciation.
The most direct route for investment in the platinum market is via the coins and bars offered by dealers. However, the limited supplies cause dealers to charge high premiums above the market price for the physical metal. The NYMEX platinum futures market provides an alternative and has a delivery mechanism. Each platinum futures contract contains fifty ounces of metal.
For those looking for exposure to platinum without holding physical metal or venturing into the futures arena, two platinum ETF products do an excellent job tracking the platinum price and hold their assets in platinum bullion. The Physical Platinum ETF product (PPLT) offered by Aberdeen Standard Investments has $1.224 billion in assets under management. PPLT trades an average of 147,310 shares each day and charges a 0.60% management fee. Each share reflects the price action of one-tenth of an ounce of platinum.
The GraniteShares Platinum ETF product (PLTM) reflects the price action of 1/100th of an ounce of platinum. The smaller ETF has $35.524 million in assets under management, trades an average of 44,600 shares each day, and charges a 0.50% management fee. While PLTM is less expensive than PPLT, the ETF is less liquid. Both PPLT and PLTM invest their assets in physical platinum.
The old saying that every dog has its day has yet to apply to the platinum market. However, a compelling value proposition makes platinum the most attractive precious metal based on its price at under $1000 per ounce at the end of last week.