Why Platinum Is So Cheap Right Now
Traditionally, when the precious metals are used to rank something, platinum occupies the top spot. Think: a musician's album going platinum, a club or service offering platinum tier membership. In these cases, platinum always ranks ahead of gold.
For about the past five years, however, that hasn't been true in terms of the prices of the metals. Gold has consistently been more expensive than platinum. So what happened?
Why the Platinum Price Fell
Ultimately, the ascendance of palladium as a key industrial metal led to platinum's downfall. We'll discuss this in detail below.
The price of platinum has fallen considerably from its highs above $2,200 per troy ounce. These levels were last seen in 2008. Still, platinum consistently traded above $1,600/oz as recently as 2013.
To understand why platinum prices tumbled, we must consider what makes platinum valuable in the first place.
Platinum Has Important Industrial Uses
Platinum (chemical symbol: Pt) is a very rare metal in the Earth's crust. It is also rather difficult—and costly—to extract from the ground. The technology to mine platinum wasn't developed until the middle of the 19th century.
In addition to these factors, platinum's primary use is in the automobile industry. Along with palladium (chemical symbol: Pd), its "sister metal," platinum is a necessary component in a car's catalytic converter. It helps convert the exhaust fumes from your vehicle into less harmful gases. This role as an industrial metal has only grown more important as society has become more environmentally conscious.
Palladium Overtakes Platinum
Like platinum, palladium is an exceptionally rare chemical element.
Over the course of the last decade, auto manufacturers found that using more palladium and less platinum was even more effective for catalytic converters. Only diesel-powered vehicles needed the higher proportions of platinum used in the past.
As a result, the prices of the two metals began moving in opposite directions.
Historically, the ratio of the platinum price vs. the palladium price was greater than 2:1. This meant platinum was usually about twice as expensive as palladium. As consumption by the auto industry shifted more toward the latter, this relationship completely flipped. Today, it is palladium that is more than double the price of platinum.
Looking Ahead: Platinum Prices Are Rising Again
It appears that the downward correction in the platinum market has finally ended. In fact, prices have risen an impressive 100% from their lows. Platinum hit a nadir of $600 per ounce before rebounding in 2021 back to $1,200/oz. This is roughly in line with the average platinum price over the previous 10 years (~$1,177/oz).
Nonetheless, platinum remains significantly below the price of gold. It would have to rally another 50% to catch up with the yellow metal.
Here's how it may close that gap in the coming years.
Platinum Is in a Supply Deficit, Lifting Prices
The covid-19 pandemic greatly disrupted platinum mining operations. This was especially true in South Africa, the world's #1 source for newly mined platinum.
2012 American Platinum Eagle coin (reverse)
With mining stalled, the global platinum market entered a supply deficit. In other words, demand for platinum is exceeding the available supply of the precious metal. During the first quarter of 2021, demand for the metal rose by 26%.
Simple economics tells us that when demand outpaces supply, the result is higher prices.
Markets will also keep a close eye on developments in the automobile industry. The ongoing shift toward electric vehicles (EVs) will undoubtedly have an impact on platinum and palladium in the coming years. Yet it may not all be bad news: platinum has shown potential as a catalyst for emerging fuel cell technologies. So any major growth in EV usage and renewable energy technology could still benefit platinum down the road.
Investing in Platinum
With platinum prices recovering but still historically low, it's an excellent time to add this alternative precious metal to your investment portfolio. Follow the links below if you're ready to get started.
Find out more about precious metals prices with today's live updated spot prices for gold, silver, platinum, and palladium:
Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.
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