The Platinum Opportunity: Investing in Platinum

Have you ever thought about “Going Platinum”? For many singers and musicians, the phrase means they have reached the ultimate in successful album sales. But what does it mean for the average precious metals investor, and why should we care? It means making some room in our portfolio for another white metal besides silver, one that spent many years priced higher than gold. Platinum is the best-performing metal from a year ago today and yet is currently at about half of gold’s price. There are several reasons why I believe platinum offers a good opportunity for investors and some interesting developments that should be supportive of platinum for years to come. Traditionally, platinum has been a top performer coming out of recession (see chart below); some believe we entered a recession several months ago.  

Platinum is a key component in catalytic converters, which are used to reduce the toxicity of automobile exhaust. Many communities have experienced a 288% increase in vandalism and theft of catalytic converters from the underside of automobiles as the value of platinum and palladium inside the converters has grown. With momentum increasing away from ICE (internal combustion engines) and towards electric vehicles, some have speculated that demand for platinum might thereby be reduced. But new developments in the automotive industry might increase, not decrease, the demand for platinum going forward.

Without a doubt, the most talked-about trend in the automotive industry has been the move toward electric vehicles. Major manufacturers have announced goals to limit or eliminate the production of ICE-powered automobiles within a few years. While this trend is bullish for copper and silver, there is less need for platinum and no need for catalytic converters in battery-powered EVs. 6 years ago in 2017, some analysts were projecting 40% less demand for platinum by 2023 due to a swift replacement of ICE vehicles with electric ones. This transition was supposed to be devastating for platinum prices; thankfully, it has not been. Today platinum prices are 14% higher than when the prediction was published. 

Platinum has performed better than gold, silver, and palladium since a year ago today. What gives? Turns out there is a new kid on the block that plans to put platinum back in high demand.

Hydrogen power. That’s right, hydrogen. One of the most revolutionary developers and manufacturers of gas-electric hybrid vehicles has announced they may have developed an EV (electric vehicle) alternative that could make many battery-powered EVs obsolete.  Toyota has been leading an effort to make hydrogen fuel-cell technology viable in the automotive industry and is now being joined by other manufacturers, such as Yamaha, Subaru, Mazda, and Kawasaki, in the quest to produce hydrogen engines for everything from long-haul trucks to motorcycles. One of the advantages of hydrogen engines is the improved air quality from the exhaust. 

The main ingredient coming out of the tailpipe is water, H2O. No noxious fumes, only water.

Platinum is needed as a catalyst not only to produce the hydrogen used as fuel but also to help convert the hydrogen into a stable state suitable for shipping.  Platinum is also needed to reconvert the transported hydrogen back into combustible fuel inside the automobile.  In the same way, platinum is used as a catalyst to reduce the toxicity of ICE exhaust (in the catalytic converter), platinum is useful as a catalyst to create, store, transport, and modify hydrogen at the user end for fuel. 

The potential for platinum is much higher for hydrogen vehicles than even ICE vehicles.  One of the key limitations to the broader acceptance of battery-powered EVs is the lack of battery components available to scale and the long recharge time needed to keep them going.  Hydrogen is easier and safer to obtain, and the time required to refill hydrogen tanks is negligible compared to the time required to recharge batteries.

Platinum is also useful for the synthesis of pharmaceutical products made with complex compounds. 

Some of the most beneficial drugs known to man would be difficult to make without the special properties platinum brings to the table. One of the areas in which platinum has shown great success is as an anti-cancer agent. 

While a little technical, this article explains many aspects of why platinum has played and will play an important role in developing medications in the years ahead. As long as disease exists, platinum will be in demand.

This is not to say that platinum will go straight up from here.  On the contrary, it will likely be a bumpy ride for platinum in the short term, just as it will be for most other assets.  But if you are looking for a safe way to diversify your precious metals portfolio, platinum offers a unique opportunity to take advantage of new developments in the automotive and pharmaceutical industries.  Drops in the price of platinum should be viewed as buying opportunities.  Environmental demands and reduced availability of inexpensive fossil fuels mean that hydrogen technology is here to stay.  We are literally on the ground floor of what is ahead for the hydrogen powertrain industry, which also puts us on the ground floor of what I call “The Platinum Opportunity”.
 
I am certainly not all in for platinum, nor do I recommend that to anyone.  Platinum is currently (and will likely remain) my smallest allocation of precious metals.  Consider it a growth stock, speculative, but with a good long-term outlook.  It only requires a small allocation to boost your portfolio when it takes off.  I continue to see good opportunities for gold and silver as well, for different reasons. 

I view gold and silver as bread and butter holdings and platinum as the jam or jelly.  You can survive just fine with bread and butter, but life is better sometimes with a little jelly on the side.  Tough times will lead to higher gold and silver prices.  As the economic tide begins to turn back northward, owning platinum will make for a better-tasting experience.