The price of gold is flying high as the coronavirus pandemic threatens to plunge the world into an economic depression. The World Economic Forum wrote this morning:
A third of the world population is under some sort of “lockdown.” Over 200 countries are affected, and the number of new cases and deaths in many places are still growing exponentially. All the while, a second crisis, in the form of an economic recession, is underway.
Gold prices ended last week at seven-year highs over $1,700 an ounce. And while prices for the yellow metal are still very good and positioned to continue increasing, there’s another precious metal that could be set for even bigger gains: Platinum
At just over $750 an ounce right now, platinum is trading at an all-time discount to gold.
Meanwhile, investment demand for platinum is rapidly rising, forcing industry analysts to reevaluate their estimates.
For the few investors who recognize the opportunity and take action, large gains seem quite likely.
The Gold-To-Platinum Ratio
We recently talked about the gold-to-silver ratio here in Energy and Capital. The gold-to-silver ratio indicates how many silver ounces are required to purchase one gold ounce. The gold-to-platinum ratio is not much different.
The only difference between the two ratios is the gold/silver ratio is more watched and it never falls below 1 as sometimes platinum is more expensive than gold. That’s never the case with silver. Other than that, the two ratios are the same.
Right now, the gold-to-platinum ratio is unusually high. With gold sitting at about $1,700 an ounce, and platinum at $750, the gold-to-platinum ratio right now is 2.27, its highest levels in decades.
Gold-To-Platinum Ratio 1990-2020
Like the gold/silver ratio, there isn’t a whole lot the gold-to-platinum ratio can tell us about the future. It does show, however, an unusually large rift between gold and platinum prices, which should correct itself one way or another.
Platinum Supply and Demand
According to the World Platinum Investment Council (WPIC), total investment demand for platinum stood at 8,060 ounces in 2019. That was 11% higher than the previous year. Demand for platinum from jewelry and industry fell last year. But exceptional investment demand mostly offset those declines.
Meanwhile, the WPIC reports total platinum supplies came in at 8,125 ounces last year, an increase by only 1% over 2018.
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The WPIC previously estimated a 670,000-ounce surplus of platinum on the market for 2020. But now they say 2020 platinum supply will exceed demand by only 119,000 ounces, or 1.5%. WPIC writes:
In November 2019, we published a forecast predicting a sizeable surplus for 2020. Today however, we forecast a near-balanced market in 2020 where supply will exceed demand only by 1.5% or 119 koz. Supply remains constrained in 2020, with strong industrial platinum demand and growth potential from autocatalysts. This is likely to support further investor interest and growth in platinum investment.
For those investors, however, getting good exposure to platinum can be a bit troublesome, especially right now.
Platinum mining companies like Anglo American Platinum (ADR) (OTC: ANGPY) and Impala Platinum Holdings (ADR) (OTC: IMPUY) have been significantly affected by the COVID-19 panic. Lockdowns and local orders have already cut into miners’ profits, so mining stocks may not be the best way to get platinum exposure right now.
A better way to invest in platinum might seem to be through one of the platinum ETFs, such as ETFS Physical Platinum Shares (NYSEArca: PPLT). However, ETFs are not designed for long-term ownership. And we shouldn’t expect a rapid turnaround in platinum prices but instead a slow, gradual recovery.
The best option for platinum investors is owning the physical metal. However, that’s easier said than done right now.
If you’ve been reading Energy and Capital lately, you’ll know that the demand for precious metal bullion is so high right now, many dealers are having a difficult time keeping inventories supplied.
Investors interested in buying gold or silver went to their favorite bullion dealer over the past few weeks to find they were sold out of many of their most popular products. Bullion coins such as the Canadian Gold Maple Leaf have been largely unavailable over the past few weeks as the Royal Canadian Mint shut down amid the coronavirus panic.
But bullion dealers weren’t completely sold out of gold. You could still buy other gold products, although they typically carried a much higher premium. That wasn’t the case with platinum.
Three weeks ago I couldn’t find a single bullion dealer selling a single ounce of platinum. I couldn’t even find platinum numismatic (collectible) coins for sale. Fortunately, that’s changing.
Bullion dealers have restocked a lot of their inventory and many are offering pre-sale options right now for 2020 American Platinum Eagles. If you were looking to invest in platinum today, these would probably be your best bet.
Keep in mind though, the premium for American Platinum Eagles is always high and liquidity can be an issue with any physical platinum investment product. So make sure you have a plan to sell before you buy.
Unless the coronavirus is the end of all humanity, it’s highly likely the price of platinum will eventually recover as it remains a vital component in autocatalysts. At about $750 now, platinum only needs to go back to $1,500 an ounce to gain 100%. For gold to gain 100% from here, prices would need to be closer to $3,400 an ounce. So from here platinum seems to have the advantage.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.