Platinum – “Rich Man’s Gold” Again?

We spoke early this week about the very bullish set up in silver based on its historic relative ‘cheapness’ to gold and the COMEX set up.  However it is not just silver looking set to reverse a trend of undervaluation, the world’s rarest investment precious metal, platinum, is looking decidedly attractive right now too.

Platinum largely just comes from two sources, South Africa and Russia.  Only around 250t is produced per year, making it more than 10 times rarer than gold (c2800t).  Like silver it has a large industrial use given it has the highest melting and boiling point of the 4 investment precious metals.  It is widely used in things like catalytic converters in vehicles.

In March 2008 it’s price peaked at $2,309 and then saw a spectacular 67% drop to just $762 in October of the same year.  It then rallied strongly back up over $1800 in 2011 amidst the big precious metals peak that year, like the other precious metals it has fallen since and currently sits at just under $1000.  Like gold and silver it bottomed at the end of 2015 and has enjoyed lumpy trend upwards since.  Whilst gold is up 26% since that December 2015 low, silver has lagged at 21% up and platinum up 17% together with a lumpier ride.

The lumpiness or volatility in the platinum market is courtesy of it being a much smaller market and hence less liquidity.  To quantify that in futures markets, open interest contracts per oz of platinum stand at less than 1/12^th that of gold.  Lower liquidity means there can be a void of either buyers or sellers in big moves in the market and hence amplify the move.  As we mentioned earlier that can see downside risk like that 2008 fall or upside forces under the same dynamic – a whole lot of buyers but not enough sellers.

As silver is known as ‘poor man’s’ gold, platinum has been known as ‘rich man’s’ gold, but since 2014 it has actually traded lower than gold.  That gap got as high as $375 as it fell late last year and is still currently $330 below gold’s price.  Compared to being $1140 above gold at its peak in 2008, it is currently anything but ‘rich man’s’ gold.  Is it about to revert to that mean?