Platinum is cheap – but will it ever get expensive again?

Lady holding a bar of platinum © Getty images
Is the price of platinum set to rise again?

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Today, we consider the investment case for the precious metal, platinum.

I’ve identified platinum as “cheap” on these pages before and that is an adjective that still applies. In fact, now it is “even cheaper”.

So should we be buying, selling, holding – what to do now?

Why does anyone need platinum?

Let’s start with some basics. What is platinum actually used for?

The answer is: lots of things. As much as one fifth of all manufactured objects contain platinum, according to some estimates, although such an assertion is hard to substantiate.

Take a deep breath.

It’s used in the chemicals industry (as a catalyst); in electronics (in hard drives); in glass manufacturing (particularly fibreglass); in petroleum refining; in medical equipment (stents, catheters, guidewires, neuromodulators, defibrillators and pacemakers all contain platinum); it has uses in the treatment of cancer; in medical implants; in fertiliser; in many different types of industrial sensors (thermocouples in furnaces, exhaust-gas control systems, carbon monoxide detectors); it coats jet-engine blades and high-performance spark plugs; and it finds use in fuel-cells.

Now breathe out.

Platinum’s two biggest uses are in jewellery and in the automotive industry, and these account for 76% of annual demand, as the pie chart below – courtesy of the World Platinum Council – shows.

Platinum demand pie chart

Annual platinum demand was down slightly in 2017 at 7.8 million ounces, with supply at about eight million. Current projections from the World Platinum Council for 2018 are that supply will fall a little, and demand rise, with the two remaining more or less in equilibrium.

Roughly 75% of supply comes from mining and 25% from recycling. Of that mined supply, a good two thirds comes from South Africa. Platinum’s fate is determined by one country in a way that no other commodity, except perhaps cobalt, is.

The decline of diesel has hit platinum hard – perhaps unjustifiably so

The thorn in the platinum story has been the change in attitude towards diesel engines in Europe, for which we have Volkswagen and other manufacturers largely to thank.

Platinum’s main use is in catalytic converters, and this is projected to fall in the coming years as regulations change and electric cars rise in popularity. It has basically meant that platinum has struggled to find a bid.

On this point of diesel usage, I should point out that western European diesel demand only accounts for about 15% of overall platinum use. If the diesel engine really is on its way out (and I would say that is by no means a certainty – I can remember the “death of diesel” being a narrative in the 1990s too, which died as technology changed), then it is not quite the disaster for platinum that it has been perceived to be.

Yet, in terms of its price, rather reflecting the supply-demand equilibrium and the anti-diesel narrative, platinum has spent the last 18 months trading between about $1,040 an ounce and just below $900. While other assets have moved, platinum has been range bound.

Over the last three months it’s been an utter dog. While the prices of most assets have been volatile, at least they’ve seen ups as well as downs. Platinum, on the other hand, has been tramping inexorably lower – although it’s rebounded a little this week. The current price is $925 an ounce.

Is platinum due a rally? Maybe even a 700% one?

OK. Here’s where it starts to get interesting. First, courtesy of Nick Laird at, is a chart of the platinum price since 1970. Nick has drawn a green “prediction” band around the price. As you can see, we are at the lower end of the range.

Platinum price trendline chart

The last time we were in this “buy zone” was the late 1990s, when platinum was $350. It rose over 700% over the next decade.

Is $900 the new $350? A 700% rise from $900 would be very welcome chez Frisby.

Platinum is more expensive than gold, right? Everyone knows that. Well, normally it is. The historical average is that platinum is somewhere around a third more expensive than gold. That isn’t the case now though. Gold, at $1,335 an ounce, is more than 1.4 times as expensive as platinum.

On a relative basis, gold is the most expensive it has ever been, or platinum as cheap as it has been. Here, again courtesy of Mr Laird, are the visuals. (The blue line at the bottom shows the price of gold divided by the price of platinum.)

Gold v Platinum chart

A collapse in the gold price to take this average back to normal levels is possible, but I would say a rise in platinum is the more likely.

Assuming no change in the gold price, a return to the historical average of 1.3 would see platinum rise to more than $1,700. A return to the levels we saw in the 2000s – with platinum at more than twice the value of gold – would see it north of $2,500.

These are the kind of longer-term targets I am looking at, but we won’t see them until there is some kind of change of narrative within the platinum space. At the moment, it’s all about declining catalytic converter demand.

But narrative begets price and price begets narrative. We need some new essential use for platinum to be found, some technology that the world can’t do without, to which platinum is essential – or some such story to get the market excited.

It could just as easily be something as banal as insatiable jewellery demand, due to some actor hailing platinum in some film. But we need something to get the narrative going. For now we are range-bound, hopefully towards the end of a bear market.

On a short-term basis, we are entering a seasonally strong time of year for platinum, and most momentum indicators are at extremes, pointing to some kind of relief rally, at least.

If nothing else, $750 must surely be the bottom for platinum

Longer-term I think we need to consider the long-term price action. Here is platinum over the last 15 years, with price labels.

Platinum price chart

You can see the incredible run-up it had in the 2000s, the crash of 2008, the rebound, the post-2011 bear market and the range in which it has been trading over the last three years.

I would suggest that the 2016 low at $810 is a major area of support, as are the 2004 and 2008 crash lows at $750. My inner pessimist fears we will test $810, and if things get really horrible, $750.

My trader friends all say I’m being ridiculous and it will never get that low. But if it does, it will be trading at well below its cost of production and many mines will close. Many are surviving only on diesel fumes with platinum at $925.

So the risk of buying at current levels is maybe 15%. Many forecasters have said stupid things that have come back to bite them, but I can’t see how platinum goes below $750. And it’s unlikely even to get there, though never say never.

The other risk, of course, is opportunity cost – that platinum remains in its current range, while party after party goes on elsewhere.

This is a market nobody cares about. Such markets are good to buy into. One day a lot of people will care. But patience – a lot of it – is required.

  • You might be spot on Dominic. Buy low, sell high. Platinum appears to be good value and the charts say “Buy”.

    The catch is the 44% used by the automotive industry. Platinums number 1 market is surely going to dwindle year after year. Governments such as UK and China have announced bans on new internal combustion engine cars from 2030.

    Diesel should be the first to go. It’s the dirtiest of all the fossil fuels. I moved out of a city centre house when I discovered the air quality monitor on our road was recording NO2 pollution at more than double the permitted EU allowance consistently for the last 3 years. Diesel pollution damages health, is said to shorten life-spans for millions of people in cities and permanently stunts growth in young childrens lungs.

    In the future, our cities will have electric cars with zero emissions and we’ll breathe clean air in our cities. We’ll look back at today and wonder why we allowed vehicles kicking out noxious fumes for everyone else to breathe in. It’ll be just like how today we think back at how we permitted smoking in restaurants, pubs and public places.

    Good riddance to diesel! We’ll all better off without it. Except the platinum investors.

    • Malcom X

      The pace of transition to the electric cars may be quicker than expected, but may be also slower due to the lithium-ion batteries’ energy density limitations or range reasons.

      While the platinum-group metals (we mean here platinum, palladium, but also rhodium) are likely to be the biggest losers (according to the UBS, the demand for them would decline by 53 percent in the world with only electric cars), other metals will benefit from the revolution. Clearly, lithium demand will soar, as most electric vehicles use lithium ion batteries (however, investors should remember that lithium is relatively abundant, while scientists are already working on solid-state batteries which do not have to rely on lithium).

      The lithium-ion battery revolution began in earnest in the early 1990s after Sony and several other companies released the first commercial version of the new battery technology. Now that lithium-ion batteries are the predominant choice for many applications, particularly electric vehicles, questions about the global supply of lithium are timely.

      1. Battery capacity exceeds 73% of the theoretical maximum (unlikely)
      2. New deposits of lithium are discovered and made economic (unknowable)
      3. Smaller lithium-ion batteries are used (shorter range)
      4. Fewer cars are built with lithium-ion batteries.

    • TrumpPutin ForPeace

      Electric cars with 0 emissions as you charge your car from a leaking failing nuke plant or a coal fire generator. Not to mention all the wire and batteries .

      • Not really. In the second quarter of 2017, 29.8% of UK electricity was generated from renewable sources. That was more than coal plus nuclear combined, plus, the contribution from renewables is rising quickly.

        If you’re an environmentally conscious consumer – which many electric car buyers are – you might also have chosen a renewable energy tariff for your home, so you could power your car with 100% clean electricity. There are many such tariffs to choose from in UK:

        But you’re right, we must ditch coal and nuclear from our energy mix ASAP. Solar and wind are much better value once you factor in all the externalities and dangers of nuclear & fossil fuels.

        • EngFan

          It will take 10,000 wind turbines to have enough electricity to convert all UK cars to battery electric.
          The UK weather isn’t much good for solar and for national security reasons I can’t see the UK importing more than 10% of its electricity from African solar farms.
          As the UK is in a non seismic zone, fision nuclear will need to play a major part for a few more decades while Fusion Nuclear is developed.
          Either way, all of this required increase of electricity generating capacity is going take many decades.
          Hydrogen fuel cells with the hydrogen synthesised from natural gas is possible today and uses half the carbon of combustion engines. And zero carbon is emitted in the city by the car itself. Only by the synthesis process which occurs at plants away from the city.

  • roger lagerfeldt

    Platinum expensive to buy as jewellery,,cheap to sell.Gold much better resale value.At this moment south africa overproduce platinum. I buy when many mines closing in south africa maybe next year. No dieselcars,,no fuelcellcars. What is left glass,chemical.

  • EngFan

    A Fuel Cell Electric car uses half an ounce of Platinum in its fuel cell. Multiples of what a diesel catalytic converter uses.

    Battery electric are currently leading Fuel Cell Electric cars, however there are a small number of production Hydrogen Fuel cell cars out there.
    There will not be enough electricity for many decades to charge a nation of battery electric cars. However there is available natural gas to be synthesised into Hydrogen for fuel cells. This will provide a stop gap for a few decades while eleven Hinckley nuclear power stations are built to power the nations battery electric cars.

    Fuel cells with synthesised hydrogen are much more carbon efficient than Petrol cars and we already have natural gas infrastructure running through the country (house heating etc). There are currently six hydrogen filling stations around London.

    Platinum is worth a long term punt while there is a shortage of electricity generating infrastructure for battery electric.

  • Peter

    Great article and responses. Thanks everyone for your contributions. About 3 months ago I bought into platinum and, as you can imagine, took quite the beating. When I read that Germany was banning diesel vehicles and the resulting prediction of doom by analysts I thought all was lost.

    But with a little research I started to change my mind and began to buy more. As mentioned by another in this thread, and I hope I understand this correctly, fuel cell electric cars contain platinum. I started to realize that despite predictions that European diesel drivers would need to convert their vehicles and I really can’t see that they would go pure electric in the fairly foreseeable future.

    They also haven’t taken into account Asia, Africa, the Middle East or South America. I may be wrong but I am thinking this may be rare buying opportunity. I still remain bullish because I think there is definitely a counter case to made here. I found the narrative painted by a few analysts just didn’t go into enough depth or detail on the subject and there are a lot more variables at play here.

    Platinum for example, like other metals, require a lot of water to produce. It is also something that South Africa is desperately short of as is Australia and many other producing countries. Examples of financial losses due to water related events, according to the CDP report, include Gold Fields in South Africa. According to the report, flooding, water quality and water shortages are the predominant cause of impacts, which resulted in an increase of operating costs for more than half of those reporting detrimental impacts.

    Just some food for thought.