The Rich Man’s Gold Becoming the Poor Man’s Gold
Platinum investments were much more popular in earlier decades than today. By a slogan, platinum was called “The Rich Man’s Gold”, because the price was often double that of the yellow metal. Platinum prices only seldom sank below the gold price–until 2015. (See chart 1.)
The big shift came with the “Volkswagen emissions scandal”, or Dieselgate, or Emissionsgate, in September 2015. After that, diesel-powered vehicles have been pushed back, losing market to gasoline cars. Platinum is used primarily in the catalysts of diesel vehicles, while palladium in gasoline-powered models. The platinum market has developed a large oversupply, which seems to continue these days.
Gold hit new all-time highs this year on $2,089.2. Silver jumped quickly and almost reached $30. But platinum lags far behind the other two and palladium. In the last months, the platinum price was less than half the price of gold. Year-to-date, gold jumped 25 percent, silver, 38 percent, and palladium, 24 percent. But platinum fell 9 percent. (As of October 23, 2020.) Yet platinum is much rarer than gold.
- The Rich Man’s Gold is now the Poor Man’s Gold.
Which Was the Real Top of the Platinum Price?
The “official” historical all-time high of platinum was $2308.8 in March 2008. But if we adjust the US-dollar prices with the US consumer price index, the real tops are very different. The mentioned $2308.8 top is $2814.7 worth now, in today’s price levels. (That means, if you sold an ounce of platinum in March 2008 at the peak, this amount grew to $2814.7. If you invested it in something following exactly the inflation.) But this is still not the real top of the platinum prices. Look at the second chart.
And the real top of platinum in the last 50 years was… $3395.66, in March 1980. The monthly maximum price topped only on 1045.00 USD in nominal terms. But in 40 years, inflation was significant. Consumer prices in the USA more than tripled in this long period. The $1045 of 1980 is $3396 worth today. (Even with the official inflation calculation methods. Alternative inflation estimations show much higher inflation rates.)
Factors That Affect the Platinum Price
But what means all that for platinum investors? We know the past returns or prices don’t guarantee future prices. There are important reasons for that low price. Platinum suffered the consequences of oversupply for several years. The market is an equation with many variables. Investment demand, jewelry demand, automobile industry, other industry branches on the demand side. Miners in many countries, recycling, liquidation of investments on the supply side. (See the quarterly report of the World Platinum Investment Council.)
Precious metals seem to be a good investment in the eyes of many people because of strong inflation fears. But others see platinum as an industrial metal and do not expect a price increase from it. In the short term, industrial demand fell for the coronavirus-crisis. But mining production also declined due to movement restrictions and mine closures.
Conclusions about Platinum
One conclusion about the inflation-adjusted platinum price is that it is historically very low. If inflation or industrial production jumps, the metal could face a bright future. In the first case, investors fleeing negative real interest rates may buy it. In the second case, speculators expecting an economic recovery.
But the other conclusion is that not even a precious metal can protect you from the devaluation of your money. Not all are a good investment in the long run, or not always. If we invest in precious metals, the risk should be divided between various ones. We need to diversify our portfolio even in this sector. (And also divide risk between various investment asset classes.)
The two main cases may happen together. Inflation has jumped many times in the past with the recovery of general consumer demand, at the end of crises.