Unlike Gold and Silver, Platinum Gets No Investment Love

Includes: GLD, GLL, PPLT, SLV
by: Carlos X. Alexandre

At least that is what the markets and the storytellers are broadcasting. What is the difference between platinum, gold, and silver? Not much! All precious metals have industrial and commercial applications, yet platinum is not viewed as "money" by those in the know.

One major difference is the melting point, with gold and silver around 1,000 degrees Celsius, and platinum requiring more than 1,700 degrees Celsius to melt. That may explain why the metal was never adopted as "money" because it couldn't be easily shaped into coins by our ancestors. According to Wikipedia, "The first European reference to platinum appears in 1557 in the writings of the Italian humanist Julius Caesar Scaliger as a description of an unknown noble metal found between Darién and Mexico, 'which no fire nor any Spanish artifice has yet been able to liquefy.’"

Thus humanity has somewhat forsaken platinum as a practical currency, and it’s apparent that old habits are difficult to overcome. The chart below shows the value increase in the futures markets over the last 12 months, and apparently silver is more "money" than even gold. Silver has appreciated 150%, gold increased about 25%, and platinum is virtually flat.

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What is the simplistic moral of the story? The cheaper the asset, the higher it flies! From an annual perspective, silver has truly reached for the moon, defying the laws of gravity while creating a familiar shape. Some will say that the metal is preempting the demise of the dollar and humankind as we know it, while others wonder who’s wearing a parachute. The other lesson is that humans never learn and at this moment silver is invincible, just like our homes were a few years back.

(Click to enlarge)

The other major difference between platinum, gold and silver is that the former didn’t join the orchestrated development of investment demand. ETFS Platinum Trust (NYSE:PPLT) has a meager market cap of 800 million, Gold Trust (NYSEARCA:GLD) is about 75 times larger at $60 billion, and Silver Trust (NYSEARCA:SLV) is up there with about $16 billion. Interestingly enough, and as reported by the Financial Times in 2007, platinum "Producers oppose platinum ETF launch."

The world’s two largest platinum producers have voiced opposition to the planned launch of a platinum exchange traded fund announced last week by Zurich Cantonal Bank of Switzerland. Trevor Raymond, head of investor relations at AngloPlat, said the world’s largest platinum producer was opposed to against the launch of a platinum as the fund would put upward pressure on prices and would have a negative impact on jewelry demand.

Where platinum producers were eyeing the jewelry market, a common sense approach for the precious metals’ industry, they failed to realize the pricing power behind creating demand from the investment community. Maybe because it wasn't viewed as consumption! However, and without investment sales, the supply of platinum is far more constrained than either of the other metals, as reported by Bloomberg in September of last year.

Consumption of the metal will outpace supply in 2012 to 2015, after being balanced in 2011, Macquarie Bank said last week in a report. Impala, the world’s second-biggest producer of platinum, said Aug. 26 it sees a global deficit of 170,000 ounces this year.

According to The Silver Institute, "Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010." The World Gold Council in its April 2011 report stated that "Total mine production (which includes net producer de-hedging) increased by 9% to 2,543 tonnes in 2010," although continued investment demand could still drive prices higher.

However, the tide may be changing for platinum as an investment destination, according to Bloomberg Businessweek, although it is led by pure economics, not conspiracy theories or media perpetrated fears.

Companies are drilling ever-deeper to maintain production, pumping chilled air down mine shafts to cool seams as hot as 160 degrees Fahrenheit. Record car output means two in every five ounces are now being used to coat auto catalysts and overall demand is expanding 9 percent, almost twice the increase in supply, Barclays Capital estimates. Shortages will get worse until at least 2015, Macquarie Group Ltd. forecasts.

And thus far, the International Platinum Group Metals Association has kept the "investment" keyword off its website, unlike the World Gold Council and The Silver Institute.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.