Gold and silver usually get the spotlight in the world of precious metals so sometimes platinum and palladium get looked over. I’ll admit that when I gave a presentation on PM’s in February I spent no less than an hour talking about gold and silver and probably less than five minutes talking about platinum and palladium so I’m guilty of it too. Still, platinum and palladium have been outperforming silver and gold and that trend could continue.
In the speech I gave I basically said that from an investment perspective platinum and palladium had some of the advantages of gold and silver, a few distinct disadvantages and different dynamics.
Like gold and silver, both platinum and palladium are good ways to have a portable tangible asset with a lot of value. Today (April 3, 2013) platinum is about $1560 and palladium is about $760.
Just like gold and silver, the demand is worldwide and they’re traded on the commodities exchange. Someone always needs these metals, as they’re extremely important in the industrial world. A small percentage of platinum is used for jewelry and investment and everything else is industrial demand. This differs from gold and silver, where about 10% of gold is used for industrial purposes and silver demand is almost evenly distributed. Theoretically speaking, if worldwide industrial demand goes up, so will these metals. If it goes down, they could go down.
One of the downsides to these metals that I gave was that they’re not as liquid or as widely recognized as gold and silver. You can always sell it back to the bullion dealer you purchased it from, but it might be hard to get a fair price in your local area. Many people keep gold and silver for the potential to barter if the economic system collapses – most people couldn’t tell you the current spot price of gold and silver, but everyone knows that gold and silver are valuable and at least that gold is more valuable than silver. There isn’t that same level of cultural familiarity with platinum and palladium. Besides, if the S really HTF I’m sure the demand for both of these metals would be way down. I can’t see either one being very good for barter.
The supply side of platinum and palladium is promising for investors because both are rare and mining is prone to disruptions. South Africa is the leading producer of platinum and second largest producer of palladium. Russia is the largest producer of palladium and second of platinum. There’s some of both metals mined in the US and Canada, but for all practical purposes Russia and South Africa rule the roost. Both countries are known for corruption and inefficiency and the primary palladium mines in Siberia are only accessible for a few months out of the year. There was a labor dispute in South Africa that shook the platinum market earlier this year.
According to some reports, South Africa and Russia are planning on forming a cartel similar to OPEC around these metals. I purchased a couple ounces of palladium a couple years ago when the price dropped due to the Russian government dumping some of their stockpile on the market in order to pay some bills. I guess it’s more responsible than just taking on more debt, like some other governments….
Oh, platinum is so rare that all of the platinum ever mined could fit into a room about the size of the average living room. All of the gold ever mined would fit into a cube about the size of the infield of a baseball diamond. So if you have a little bit of platinum, you really have something special. It takes about 10 tons of platinum ore to get one ounce of pure platinum. It takes about 3 tons for gold, to put it into perspective.
There are also people who make a living salvaging palladium from catalytic converters (the primary use of palladium – there’s a couple grams in each one). When the price of palladium shot up a few years ago, there were even reports of theft, kind of like when copper goes up wire theft goes up.
Ok, I’ve kind of been shooting from the hip on this one so I’ll sum up with I think that platinum and palladium are worth looking into for investment purposes and diversifying your physical assets but maybe not the best idea if you’re stacking PM’s solely under the premise that all hell will break loose someday.