The One Precious Metal You Shouldn’t Buy

A lot of readers have been asking me lately whether they should invest in platinum. After all, platinum is a precious metal like gold, right?

In fact, it’s often referred to as “rich man’s gold,” just like silver is “poor man’s gold.”

This terminology is misleading. There’s only one kind of gold: gold.

The case for investing in gold is completely different than the case for investing in platinum. Gold is best thought of as a currency, not a metal or a commodity (though it is also a metal or a commodity). The price of gold is driven by the type of macroeconomic factors that move currencies. And it serves as a safe haven against inflation and deflation, which of course makes it my preferred “insurance” for the Super Crash.

Platinum is a completely different story.

The price of platinum is primarily driven by its use as an industrial metal – and it’s so volatile that it’s a terrible long play.

In fact, I strongly suggest that you short it.

Here are my recommendations…

Don’t Be Fooled by Platinum’s Recent Rally

Platinum prices are largely driven by the auto industry, where platinum is a key component in catalytic converters. In recent years, American and Japanese manufacturers started shifting away from platinum to recycled catalytic converters or less expensive palladium. This reduced demand for platinum. Volkswagen’s emissions scandal also reduced demand for platinum.

As a result, demand for platinum is down sharply. Anglo American Platinum, a major producer, recently announced that it was placing all expansion projects on hold.

There are potential bright spots on the horizon, but they are far in the distance. The current market for fuel cells, which use platinum, is around 15,000 to 20,000 ounces of platinum per year. The potential demand could increase to 50,000 ounces per year if the auto industry adopts platinum fuel cell technology.

Platinum is up 8.7% year-to-date, most likely benefitting from the rally in gold.


But platinum prices are extremely volatile. During periods of strong economic growth, platinum tends to trade at twice the price of gold, but today we are in highly uncertain times and platinum is trading at a discount to gold ($926 per ounce versus $1,210 per ounce at this writing).

These charts clearly show platinum’s excessive volatility: note how it roughly tracks with the price of gold. As well, observe its extreme “crash and burn” behavior during the 2008 crisis. Far from being a “safe haven” during the Super Crash, this is one asset that will self-destruct.

As long as economic growth remains sluggish, the outlook for platinum is dim. And when the market crashes, you can expect a dramatic bottom in platinum as well.

That, of course, makes platinum an ideal short play – but please, keep it out of your portfolio.

My Platinum Short Recommendations

Miners:

  • Polymet Mining Corp. (NYSEMKT:PLM)
  • Stillwater Mining Company (NYSEARCA:SWC)

ETFs:

  • ETFS Physical Platinum Shares (NYSEARCA:PPLT)
  • Platinum Group Metals Limited (TSE:PTM)

PHYSICAL:

  • Sprott Physical Platinum and Palladium (NYSEARCA:SPPP)

Investors should not confuse the case for platinum with the case for gold. The reason to buy gold is because central banks are destroying the value of the dollar and all fiat currencies. Gold is insurance against that. Platinum is an investment in robust industrial production. We are in tough economic times and a bear market. Now is the time to invest in gold, not platinum.

Sincerely,

Michael Lewitt

12 Responses to “The One Precious Metal You Shouldn’t Buy”

  1. What is your outlook on “rare earth” elements/minerals as a whole? Obviously, as Chinese domestic production turns sluggish, demand will decline but it seems there will always be production somewhere of something (electronics, rocketry and other space program needs, hi-tech stuff in general ad infinitum). With Russia, China, Canada and the good ol’ USA having the lions share of rare earths (along with the more fortunate of the “…stans [though it seems the more economic potential = higher levels of corruption and police state control of the economy]) and their/our collective markets and paper/corporate driven economies heading into a nosedive, how does one assess the potential of both foreign and domestic rare earth stocks (or companies that are heavily into them in conjunction with other things?

  2. Christopher M Smith

    Chris Sommers – Chinese rare earth (RE) production is not declining and their illegal production is holding up also ! The market is currently working through large stockpiles. The world demand for all sorts of electronic gadgets & particularly strong magnets, is not declining – see wind turbines, EV cars etc. The fact that RE resources are widespread is of no consequence since developing these resources is an very long and expensive challenge. Currently the ONLY producer outside China is Lynas (Australian company with production in Malaysia) – main products are for magnets Nd & Pr. Very unlikely that any serious competition from US (except maybe Molycorp – just completing Ch 11 bankrupcy) and certainly noone else.
    Have a look at Lynas share price and you will see that it does not correlate with the current market crash at all.

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