Rich Man’s Gold Has Flown Under the Radar for 15 Years

Wealth preservation with precious metals refers to the practice of investing in gold, silver, platinum, or other precious metals as a means of protecting and preserving one’s financial assets over the long term. Precious metals are often seen as a hedge against inflation because their value tends to remain stable or increase during times of economic uncertainty or when the purchasing power of fiat currencies declines. Unlike stocks or bonds, precious metals are physical, tangible assets that you can hold in your possession and control. Precious metals are often viewed as a safe-haven investment during times of geopolitical instability or crisis. Historically, precious metals have been used as a store of value for thousands of years, and many investors believe they will continue to hold their value in the long run.

Platinum has been referred to as rich man’s gold in the past

Platinum is sometimes referred to as rich man’s gold due to several factors that distinguish it from gold. Platinum is much rarer than gold. While gold is rare compared to other metals, platinum is even scarcer, with annual mine production being significantly lower than that of gold. This rarity contributes to platinum’s perceived value and exclusivity. Historically, platinum has often traded at a higher price than gold due to its rarity and industrial applications, but this has not been the case now for over a decade. Due to its rarity and price, platinum is often associated with wealth, luxury, and prestige. Platinum credit cards, for example, are typically reserved for high-net-worth individuals and offer exclusive benefits.

Platinum has significant industrial applications

Platinum has significant industrial applications, particularly in the automotive industry, where it is used in catalytic converters to reduce vehicle emissions. This industrial demand contributes to its value and sets it apart from gold, which has limited industrial uses. Platinum used in jewelry is often purer than gold. While 18-karat gold is 75% pure, platinum jewelry is typically 90–95% pure, adding to its perceived value and prestige. Platinum plays a crucial role in hydrogen fuel cells. Hydrogen fuel cells are devices that convert the chemical energy from hydrogen into electricity through an electrochemical reaction. Platinum may benefit greatly from the push to “decarbonize” the world with many green energy initiatives. As we will read below platinum may also benefit from the current AI boom.

Rich man’s gold peaked in price in 2008 and has been down ever since

The price of platinum reached an all-time high of around $2,300 per ounce in March 2008. Keep in mind the price of gold in 2008 averaged $872 per ounce. The price of platinum spiked in 2008 due to the concern of a major shortage due to power supply disruptions in South Africa. Geopolitical tensions, such as those between Russia and the West, also contributed to concerns about potential supply disruptions. This was relevant since Russia is the second-largest platinum producer after South Africa. Investors, anticipating further price increases, bought platinum, creating additional demand and contributing to the price rise.

The demand for hybrid vehicles versus diesel vehicles hurt platinum demand

In the early 2000s, there was a significant increase in demand for diesel vehicles, particularly in Europe, which increased the demand for platinum. The demands for diesel vehicles were replaced by hybrid vehicles causing the demand for palladium to pick up dramatically but causing the demand for platinum to drop off significantly. The Volkswagen emissions scandal for their diesel efficient cars also played into the drop off in demand for diesel cars as well. The demand of consumers to purchase diesel cars over the past 15 has not been a priority or preference versus other types of engines. But this is where the platinum opportunity comes into play. The diesel engine importance for platinum is in the rear-view mirror and other exciting platinum applications lie ahead.

The generative AI market may boost platinum demand

According to the World Platinum Investment Council,

“The generative artificial intelligence (AI) market is soaring, growing to around US$1.3 trillion over the next decade from a market size of US$40 billion in 2022. The expansion of AI applications is also leading to strong global demand for semiconductors, tiny electronic devices designed to enable functions such as processing, storing, sensing, and moving data. According to some forecasts, revenues from semiconductors used in AI could increase from around US$44 billion in 2022 to US$120 billion in 2027. Metals Focus, a leading precious metals consultancy, believes that platinum demand will benefit from AI—and semiconductor—proliferation through the use of platinum alloys in sputtering targets.”

The bottom line is that based on history platinum is cheap

Platinum is very scarce in the earth’s lithosphere. Russia, South Africa, and Zimbabwe are the world’s largest platinum producers and Russia may be selling platinum reserves to pay for their war effort which could have caused price pressure recently. The platinum market has moved into a period of deficit that could last for the rest of the decade. According to Tom Dyson at Bonner Private Research The device that converts hydrogen and oxygen into electricity, called a hydrogen fuel cell, requires platinum. The point is, platinum could be one of the critical natural resources that enable the transportation of the future.

Today platinum is roughly $900 per ounce. Gold is roughly $2,160 per ounce. Platinum, rich man’s gold, is almost 40% the price of gold. Platinum does not replace gold or silver when it comes to diversification and wealth preservation, but a serious case can be made that rich man’s gold is undervalued based on its history but more importantly based on the potential demand due to many exciting industrial applications in the future. Increased demand for a commodity that has a tight supply typically means higher prices for that commodity in the future. If platinum can make it back to its 2008 high of $2,300 it would be a 150% return from where it is today.

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