Why Platinum Is So Cheap Right Now
Why Platinum Is So Cheap Right Now
Understanding the market dynamics behind platinum's dramatic price decline and recovery potential
Introduction
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?
Market Reality Check
While platinum maintains its cultural status as the ultimate precious metal, market dynamics have fundamentally shifted the pricing hierarchy. Understanding these changes is crucial for investors considering platinum as part of their precious metals portfolio.
Table of Contents
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.
Platinum's Price Journey
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.
Rarity and Extraction
- Exceptionally rare in Earth's crust
- Difficult and costly to extract
- Advanced mining technology required
- Limited global production centers
Primary Applications
- Automobile catalytic converters
- Jewelry and luxury goods
- Industrial catalysts
- Medical equipment
Environmental Role
In addition to these factors, platinum's primary use is in the automobile industry. Along with palladium, it helps convert exhaust fumes into less harmful gases.
Industrial Demand Dynamics
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.
The Great Reversal
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.
Current Market Reality
Today, it is palladium that is more than double the price of platinum. This dramatic reversal reflects the fundamental shift in industrial demand patterns and highlights how quickly precious metals markets can evolve.
As a result, the prices of the two metals began moving in opposite directions. You can track these price movements by monitoring both platinum and palladium spot prices to understand this ongoing dynamic.
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.
Price Recovery Context
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.
Recovery Metrics
- 100% rise from $600 lows
- Current levels around $1,200/oz
- Aligned with 10-year average
- Still 50% below gold prices
Market Catalysts
Here's how platinum may close the gap with gold in the coming years through supply constraints, industrial innovation, and evolving automotive technologies.
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.
Supply Disruptions
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%.
Economic Fundamentals
Simple economics tells us that when demand outpaces supply, the result is higher prices.
This fundamental imbalance suggests continued upward pressure on platinum prices as supply chains recover and demand remains strong.
Future Market Developments
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.
Technology Transitions
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.
This dual nature of technological change—potentially reducing traditional automotive demand while creating new applications—makes platinum an intriguing investment proposition for forward-thinking investors.
EV Impact Considerations
- Reduced catalytic converter demand
- Transition timeline uncertainty
- Hybrid vehicles still need catalysts
- Diesel markets remain important
Emerging Opportunities
- Fuel cell technology catalyst
- Hydrogen economy applications
- Green energy infrastructure
- Medical and industrial uses
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.
Investment Advantages
- Historically low prices relative to gold
- Supply deficit fundamentals
- Industrial demand recovery
- Portfolio diversification benefits
Market Positioning
Current platinum prices offer an attractive entry point for investors seeking exposure to a precious metal with both industrial utility and store-of-value characteristics.
Diversification Strategy
Adding platinum to a portfolio already containing gold and silver can provide additional diversification and exposure to different market dynamics.
Monitoring Tools
Stay informed about platinum market developments by tracking current platinum spot prices and comparing them to other precious metals.
Getting Started with Platinum
For investors ready to explore platinum opportunities, consider starting with small allocations to understand the metal's unique market characteristics. Platinum's industrial demand profile makes it behave differently from traditional monetary metals like gold and silver, potentially offering portfolio benefits during different economic cycles.
The Platinum Opportunity
Platinum's current market position represents a unique opportunity in the precious metals space. While the metal has lost its traditional price premium to gold, the fundamental factors driving this change may be creating an attractive entry point for informed investors.
Key Takeaways
The shift from platinum to palladium in automotive applications, combined with supply disruptions and emerging technological applications, creates a complex but potentially rewarding investment landscape. Platinum's recovery from extreme lows, coupled with supply deficits and evolving industrial demand, suggests the metal may be positioned for continued appreciation.
As with any investment decision, understanding the underlying market dynamics, supply and demand fundamentals, and technological trends is crucial for success in platinum investing. The metal's unique position between traditional monetary metals and industrial commodities offers both opportunities and challenges for investors willing to understand its distinct characteristics.