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Wednesday, August 6, 2014

Are You Thinking About Platinum?

Back in the year 1751, a Swedish chemist coined the phrase “white gold” in relation to platinum. There is so little of it that has been mined throughout history that the total amount might fill something the size of your two car garage. If you know anything about platinum, then you know that in the very, very near future it will be one of the most sought after metals of all those mined today. But, you may ask, why is platinum becoming more of a valued metal today than it has been since its heyday back in the 1700's? The answer here is multi-faceted in its connection to today’s market.

For one thing, there is a production shortage in South Africa, the main source of most of platinum production, and conversely, automobile manufacturing has become wholly dependent on platinum for many aspects of car production. Total platinum extraction is also one of the smallest quantities of any metal on the planet. Extractions per year are about .07% of total gold and .01% of the total amount of silver. It takes about ten tons of raw material to produce an ounce of platinum. South Africa has about 90% of the platinum reserves, and the mining conditions remind one of a subterranean entrance to Hell itself.

Last January the workers in the mines there went on strike and cost the mining companies about 18 billion in the local exchange (1.7 billion for USD). This strike created a loss of about 1.2 million per ounce. No one comes out a winner in this sort of stand off between workers and management. Things have gotten underway in the interim, but the financial conditions of the mining companies could not be more imperiled.

At a cost of $1600 for production of a single ounce, platinum is priced below the cost of production. Eventually, platinum prices will have to rise. This makes no difference to you if you can’t afford the current price of $1500 per ounce, but if you could squeeze something out in order to get in on the wave before it hits, you may find it to be worth it in the long run.

In the nation of India today, there is a “craze” happening in the world of platinum fine jewelry. The climb has come so fast and hard that demand is forecasted to be at around a 65% increase by the years end. 

Catalytic converters for the automobile are wholly dependent upon platinum in their production. 25% of all platinum use on a world wide scale is due to the need of converters for the world’s increasing dependence upon mechanical mobility. It’s a $7 billion dollar market. Anti-pollution standards are making the market move in pre-determined ways that are bankable. The demand is two fold in its make up on both the consumer side and also the ecological side.

One is well aware of the conditions in China considering bicycle riding. We’ve all seen the photos of huge sections of the population all riding in one direction on a cavalcade of two and three wheelers. China itself, however, is experiencing an expansion of the middle class, even as America “povert-izes” its own citizenry. By the year 2022, China will have about 300 million “well off” Chinese citizens, according to estimates by those who prepare these kinds of things. Odds are, they will all be giving their bikes to their kids and acquiring some higher end transportation in the form of automobiles and other means of transport.

The United States has about one car per every person in the country, in 2012 China’s ratio was at about 1 to 85. During the coming years, as China becomes more affluent, the growth rate for auto usage looks something like over 9,000%. Government requirements demand a converter on every new car purchased in China. Last May, the sales for cars in China surpassed 1.5 million units in one month. That’s a surge that’s got legs to it. 300 million nouveau riche Chinese will need converters for their new cars and those converters will require MORE platinum. It will take 203 million ounces of platinum to meet that demand.  

Platinum could easily appreciate to around $6,000 an ounce from its current $1500/ounce. If you own even a small amount, you could have a “little monster” in less than ten years. We could see a 17% jump in the price by the end of the year giving a price mark at about $1700/ounce. So far, the rise in price for platinum has been due to the supply constraints and the unrest in mining facilities, but with an additional placement of demand, the spike could be enormous. To regain its cost of capitol, the mining companies will need the price to rise to about $3,000/ounce by the middle of 2015, so taking a wait and see attitude may only be a small window of afford-ability.

If you are thinking about platinum, just keep in mind the rising tide of Chinese affluence and the demands of emissions control combining to effect the overall price. Of course, if you could buy a platinum mine all for yourself, that would be ideal.     

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