Platinum and Palladium: More Precious than Silver and Gold

The precious metal hierarchy goes something like this…

Gold is essentially the “Perfect 10” of precious metals.

It’s the ancient metal of kings and a precursor for currency. Once upon a time, gold was the basis for sound money. Gold has long been a measure of wealth, and it is still coveted the world over for jewelry and as a store of wealth.

Throughout history, people have literally traveled to the ends of the earth in search of the yellow metal: European explorers and conquistadors flocking to Mexico and the New World in search of cities made of gold… American pioneers crossing the continent in covered wagons to prospect in rivers in uncharted territory… and bands of pirates crossed oceans to find and bury chests filled with gold coins.

Next up is silver…

Silver is often said to be gold’s ugly sister. Perhaps not as aesthetically pleasing as gold, silver is much cheaper to gain exposure to — and is quite possibly a better long-term investment than gold.

Throughout history, some 1,411,475 tons of silver have been mined (so it’s not exactly “rare”), while only 161,000 tons of gold have been mined in total (enough to fill two Olympic swimming pools).

Two much rarer metals often fly under the radar: platinum and its close cousin, palladium.

Platinum is much rarer than both gold and silver so rare, in fact, that all of the platinum ever mined could fit into your living room. 

And palladium is even rarer than that.

Unlike gold, these metals derive much of their value from industrial uses. After watching gold and silver be beaten down over the last year, it may be high time to check out the “other” precious metals. After all, supply is tight — and only getting tighter.

The vast majority of platinum comes from South Africa, where impediments to mining it have a strong impact on the spot price. These impediments have been coming fast and furious. Last year, South African miners took part in violent protests over wages, which left dozens of miners dead and uncertainly looming large.

Since the platinum mining margins were already tight, these events pushed Anglo American Platinum to shutter four mine shafts and sell off one of their mines, killing off 14,000 jobs and causing production to take a sizable hit. According to management, they could not turn a profit, despite platinum’s strong industrial fundamentals.

“The platinum business has attractive underlying fundamentals, but we are facing tough decisions to restore profitability to our operations. We must evolve to align the business with our expectations of the platinum market’s long-term dynamics and address the structural changes that have eroded profitability over time,” Chris Griffith, Anglo American Platinum’s Chief Executive, said in a statement.

As far as price goes, it’s all about supply and demand — and the demand depends a lot upon the auto market, since platinum is used primarily for catalytic converters.

Demand is likely to increase alongside the rise of emerging markets, especially in China. 

China is now the world’s fastest-growing market for automobiles. Production reached 16 million units last year, surpassing the United States as the world’s largest auto producer. And the Chinese are going to need plenty of platinum for all those cars…

Platinum prices reached parity with gold earlier this year and have now settled around $1,200.

Buying bars of platinum can be rather costly, so a more accessible way to gain exposure to platinum is with the ETFS Physical Platinum Shares (PPLT), which is backed by physical bullion.

Palladium is even rarer than platinum, and certainly less talked about. But it may be due for a breakout year in 2015…

Palladium has been slowly replacing platinum as a lower-cost material for catalytic converters for the past two decades, since it can basically perform the same function as platinum — at half the cost.

“The fact that there is a very strong possibility that automakers will dump platinum for palladium is reason enough to buy the metal. The last time this happened, palladium went to the moon,” according to Annuity IQ.

Palladium recently hit a 14-year high and is now around $775.

The easiest palladium play is through the ETFS Physical Palladium Shares (NYSE:PALL), which is backed by the physical metal and stored in vaults in London and Zurich. 

As with most precious metals, buying the physical product is the safest way to ensure the metal you bought actually exists in full. However, if you don’t want a shipment of palladium showing up at your door, the ETF is a good bet.

Thanks for subscribing to the Outsider Club. We’ll continue to find ways to boost your portfolio with flexible and safe investments that will help you break free of the traditional trading advantages, traps, and pitfalls financial institutions use to siphon off your wealth…

The Outsider Club Research Team