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A Few Words About Platinum
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(February 10, 2013) With gold prices absolutely in the doldrums once again, we find time to explore our favorite grey metal, platinum. It’s certainly not a beautiful sight – platinum lacks the shiny yellow luster of gold, instead giving off a certain ‘industrial’ aura. Although its price action over the past few years has been volatile to the extreme, platinum is widely useful and quite scarce, and likely to become more so.
Platinum is a precious metal both odd and interesting, grey in color, and lacking gold’s brilliance, and malleability. And unlike gold, which is broadly distributed over our planet and mined on nearly every continent, platinum resources are mostly concentrated in Russia and South Africa. Platinum is a very scarce metal, about twenty times scarcer than gold - each year some 2600 tonnes of gold are brought to the surface, while annual platinum mining production comes to only about 130 tonnes.

Although gold in its natural state has been prized for several millennia, it can be said that platinum was not ‘discovered’ (separated from its ore) until the 1700s. Not that it hadn’t been encountered before that - in the 1600s, Spanish miners found platinum ore in South America, and called it ‘platina,’ or ‘little silver.’ They disregarded it, convinced that it was silver in an ‘unripe’ form, and discarded tons of platinum ore while questing for silver and gold.

In Russia, they know what to do with it, and minted platinum coins in various sizes bearing the portrait of their monarchs were struck starting in 1828. But plaitnum did not make much of an impression at first, at least in the West. Oddly, the concept of 'fashion' applies as much to an element as it does to any 'lifestyle accessory.' For instance, during Napoleon’s conquests in the early 1800s, he carried a set of flatware made of the rarest and most novel metal known in his time – aluminum.

Once technology came along to separate platinum from its ores, many used for this dense grey metal were found during the 19th and 20th centuries. Its conductivity and virtually total resistance to corrosion made it valuable in the laboratory and in manufacturing. Most importantly, its properties as a catalyst were put to use in the late 1960s, as a key element in catalytic converters for autos and trucks. This ubiquitous anti-pollution device has consumed the largest amount of platinum (and palladium) since its advent some 40-odd years ago.

Tracing platinum’s price history over the decades, we find it tracking gold fairly consistently, but generally at a significant premium to the yellow metal. For instance, in the years 1960-1967, when the gold price was pegged internationally at more or less $35 an ounce, platinum traded in a free market at an average of $90 per ounce. And this was before catalytic converters consumed such a large proportion of platinum supplies.

All the precious metals surged in price during the inflationary 1970s, although gold (and silver) captured most of the headlines and public attention, year after year, platinum traded at a higher average price than gold. This pattern was interrupted temporarily from 1981-1985, when gold traded very close to platinum prices – gold’s price average $387.55 over those five years, while platinum prices averaged $378.05.

For the next 26 years (1986 – 2011), the yearly average platinum price exceeded that of gold by some 40%. And that differential was fairly constant over the whole time span. From 1992 to 2002, platinum was 35% more expensive than gold, and from 2003-2012, it averaged 42% higher.

It wasn’t until the period 2007-2008 that platinum began to makes wild swings in price, both in absolute terms, and also in relation to gold prices.

The high point for platinum prices, both in absolute terms and as compared with gold, came on May 23rd, 2008. Platinum traded that day at a high of $2,182.00 in London, a day on which the gold price was $927.50. Platinum’s price that day exceeded gold’s by 118%, a spread that hadn’t been seen since the 1960s.

But almost immediately, markets seemed to take note of the economic carnage the world over, and decided that platinum usage would suffer right along with the global economy. Platinum prices started on a downward slope, ending at $898.00 for the year, an astounding loss of 58%. Gold experienced a more modest loss, ending the year at $879.00. Platinum’s premium to gold during the latter part of 2008 went from 118% to less than 2% in seven months.

Yet, still platinum held its premium to gold, if only by a few dollars, and it stayed that way until last year. In 2012, the average yearly price of platinum was less than that of gold for the first time since 1985, with platinum prices averaging $1551.48, versus gold’s $1,668.98.

But in recent months, that seldom-seen ‘platinum discount’ has been shrinking, and now in the opening weeks of 2013, platinum has finally regained a small premium to gold. Lots of different factors contribute to that change. For one, labor troubles in South Africa have cast doubts on the reliability of platinum supplies going forward, and a world economy that is expanding, although modestly, has raised hopes of increasing demand.

There is no doubt that gold is more popular as a monetary commodity, inflation hedge, and jewelry, coin, and bullion item. Gold has the heritage of beauty, luster, fungibility, and scarcity in its favor. That is why gold has been the most consistently reliable store of value employed by the human race for the past 2,500 years.

Currently, gold is in a relatively stable price range, with gold prices going all the way back to late 2011 having done very little. Gold’s nominal all-time high dollar price was set nearly eighteen months ago. Gold’s momentum, as of this writing, is undetectable. Just recently, looking back at the past seven day’s PM London gold fixes, their entire price range from top to bottom has differed by about four-tenths of 1%.

A useful metal such as platinum - as compact and easy to store as gold, and twenty times more rare – should not be ignored. Platinum is now trading at a far smaller premium to gold than has seen over the past 50 years. Today, platinum would seem to richly deserve a place in any private portfolio of portable hard assets that is designed as a hedge against inflation.

 

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