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Platinum – The precious metal with massive upside potential

by Tim Straiton
Friday 29th July 2022

The current price of platinum is $ 893 and trading 9.5% below its falling 200 day moving average of 978.77. The current trend on a daily time frame is bearish, however the ratio of platinum to gold stands at a historic low level of 0.50.

The demand for platinum is likely to grow steadily because of the worldwide “green economy” initiatives. Platinum is used as a catalyst for producing green hydrogen power. Green hydrogen technologies could eventually power over 425 million vehicles and cater to 18% of the world’s total energy needs. Estimates indicate that the world could invest over $11 trillion to transition to green hydrogen in the next 30 years. A significant portion of green economy investments would go towards procuring platinum, which acts as a catalyst in the electrolysis process.

Investors are showing interest in platinum and platinum mining stocks for the following reasons:

  • A safe investment in a troubling economy
  • The increasing use of platinum in green hydrogen technologies
  • Toughening emission standards in developing countries
  • The use case of platinum in lithium-ion batteries for the automotive industry

A variety of supply and demand factors could well cause platinum to trade at a premium to gold in the near future:

  • Platinum is a much smaller market. Cumulative world production of platinum is estimated to be about 5% of gold (9400 tonnes versus 182,000 tonnes). From 1994-2014, 3700 tonnes of platinum were mined versus 52,600 tonnes of gold or about 7% .
  • Fluctuations in the relative prices of platinum and gold are largely driven by:
  • The overall growth and health of the world’s economy and in the case of platinum, the automotive industry;
  • Labor, power, currency, and political issues in South Africa that cause major perturbations in the platinum supply;
  • Safe haven hoarding of gold and to a much lesser extent, platinum, in times of economic uncertainty and major geopolitical events;
  • Speculators moving in and out of paper markets of both metals (bullion exchanges, ETFs, and derivatives) and to a lesser extent, central bank trading of physical gold.

When one considers that the price of platinum in 2008 was more than twice the price of gold (Platinum / Gold ratio 2.25), the current price level can be regarded as a low risk/reward investment.

 

Investment exposure to platinum can be made via the following instruments:

 

  • The Aberdeen Standard Physical Platinum Shares ETF (PPLT). Current market price $83.75.
  • Sibanye-Stillwater stock (NYSE: SBSW) Current price : $9.71. Sibanye-Stillwater is the world’s third-largest producer of platinum and the second-largest producer of palladium.

Disclaimer

Our opinions are not a recommendation to buy or sell a security. Your decision whether or not to open a transaction should be based on your own due diligence and not on any representation we make to you.

 

Charts courtesy of