By Nathan Slaughter
Not All That Glitters is Gold
Sister Metals: Platinum and Palladium
The Easiest Way to Buy
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It’s one of the rarest metals on the planet … 30 times rarer than gold.
It takes anywhere from seven to 12 million tons of raw ore to produce a single ounce of the metal. In 2009, miners extracted 64 million ounces of gold; stockpiles of this metal grew by just six million ounces.
And I use the word stockpile figuratively, because unlike other metals, there are typically little to no above ground supplies of this rare and valuable metal. That’s because demand often outpaces supply.
In 2008, the world consumed 7.3 million ounces of the stuff, compared to production of just 7.0 million ounces. We need every ounce available and then some.
So why is this metal needed at all when it’s expensive, rare and hard to mine?
Above all, platinum owes its popularity to chemistry. You’ve probably heard of catalytic converters. Internal combustion engines would spew tons of noxious pollutants without these miraculous devices, which convert hydrocarbon exhaust into carbon dioxide and water vapor. Well, platinum group metals (PGMs) are the catalyzing agent—and try as they might, automakers have never found a substitute.
Platinum prices are heavily influenced by demand for cars and trucks. And that demand is undergoing a brisk recovery. Forecasts are for yearly output to reach more than 70 million vehicles this year, 80 million by 2013 and more than 100 million within the next decade.
That will trigger heavy demand for catalytic converters, particularly as more stringent emissions regulations take hold in emerging markets.
Meanwhile, platinum is exceedingly rare and there aren’t many new discoveries to boost the supply base. Chronic labor shortages, permit delays and mandatory mine shutdowns also present ongoing constraints.
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All this is also good news for platinum’s sister metal—palladium.
In fact, I expect the supply/demand imbalance to be even more tilted for palladium. This sibling metal has historically been favored in gasoline engines, whereas platinum is more common in diesel. But diesel makers are increasingly turning to palladium because it’s cheaper.
In the past two decades, there has been a persistent palladium deficit. To cover the shortfall, about 1.5 million ounces a year have been drawn from an inventory stockpile in Russia. But most experts believe those reserves are now nearly exhausted.
And automakers aren’t the only buyers standing in line for these metals.
Demand from the jewelry industry is spiking. There are retail fund investors like you and me who are clamoring for these precious metals.
The Securities and Exchange Commission initially balked at the idea of a platinum fund, for fear it would inflate prices. But they eventually caved—and within just a few months, ETF Securities Physical Palladium (PALL) and ETF Securities Physical Platinum (PPLT) have already attracted more than $1 billion in assets.
The reason behind their popularity is clear to see. In the past six months, gold is up about 13%. Platinum is up 19%. And palladium has soared 74%. That’s quite a run, and I wouldn’t be surprised to see a pullback. But the long-term demand for platinum and palladium is unquestionable.
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Editor, Scarcity & Real Wealth