Platinum: The Other White Metal

We talk a lot about silver but there is another white metal that often gets lost in the shadows - platinum.

In this week's Money Metals' Midweek Memo, host Mike Maharrey talks about the platinum market and explains why there are reasons to be bullish on the other white metal.

He also talks about Federal Reserve Chairman Jerome Powell's testimony on Capitol Hill.

Mike opens the show reminiscing about the ad campaign for pork in the 1980s -- "The other white meat."

"Now, you’re probably wondering what pork has to do with precious metals or the economy. The answer is nothing. But today, I’m going to talk a little about the other white metal – platinum. That got me thinking about the ad campaign and, well, here we are. My brain is a strange place sometimes."

Before getting into the platinum market, Mike offers some thoughts on Federal Reserve Chairman Jerome Powell's testimony on Capitol Hill. 

"It’s wild how much attention people pay to every syllable that drops out of Powell’s mouth. I’ve long said you really need to pay attention to what the central bank actually does and not what the Fed people say. What they say changes by the minute. Just think about how much the projections for rate cuts changed in less than three months between the March and June meetings!"

Powell started his testimony trying to tamp down rate cut expectations, but during the Q&A he gave some indication that cuts might happen sooner rather than later. 

"If he was trying to rein in rate cut expectations, it didn’t work. Following Powell's comments investors continued to put a nearly 70 percent probability on a Fed rate cut in September. One economist I read said, 'He's beginning to tee up a rate cut.'”

Mike said the most interesting part of Powell's talk was when he conceded that the central bank is between a rock and a hard place. The Fed recognizes that keeping rates too high for too long will wreck the debt-riddled bubble economy, but cutting too soon with resurrect price inflation. 

"You can see why everybody is desperate for rate cuts. But as I’ve said over and over again, the Fed still hasn’t done enough to slay price inflation. Yeah, it’s coming down a bit, but as soon as they cut rates, they are creating inflation again. Any declaration of victory over inflation at this point is a surrender to inflation."

Mike then pivots to talk about platinum. 

"You don’t hear much about platinum these days. It’s kind of been a laggard in recent years. You might not even remember that there was a time not too long ago when platinum cost more than gold. I’ve talked a lot about the fact that silver appears to be underpriced given both technical factors and the supply and demand dynamics. Platinum may be even more undervalued."

Mike goes on to give an overview of platinum's price movements since its record high in 2008.

"As we talk about platinum, keep in mind that it’s even harder to wrap your head around the market than silver. There is much more industrial demand and less monetary demand. That makes the price more volatile than silver. It’s accurate to say silver tends to generally track with gold over time. This isn’t true of platinum, at least not in recent years."

Mive then gives an overview of the current platinum supply and demand dynamics.

"Given these dynamics, it’s much harder to project the trajectory of platinum and you take on a bit more risk. Still, there are some historical markers along with supply and demand dynamics that provide reasons to be bullish, especially in the short to medium term."

Mike says he thinks there are reasons to keep your eye on platinum.

"Over the last two years, platinum has shown signs of life. In 2023, the platinum price was up a healthy 12.5 percent. So far this year, the metal has charted modest gains of about 3.8 percent."

As Mike explains, supply and demand dynamics set up platinum for a possible bull run. Supply is restricted and demand is increasing. He notes there have been significant market supply deficits in the last couple of years.

"In 2023, there was a market deficit of over 100 million ounces, according to the World Platinum Investment Council. This was due to a combination of increasing demand and lagging mine output."

Mike highlights some of the sources of platinum demand and notes several will likely need more metal in the years ahead. He also notes another interesting development in China - the launch of that country's first platinum futures exchange.

"According to the South China Morning Post, the Guangzhou Futures Exchange (GFEX) 'will be the first exchange to allow delivery against its contracts of platinum and palladium in a form used by the main consumers, including carmakers and other industrial sectors, and the contracts may also support platinum investment demand in China.'”

Mike wraps up saying that it remains to be seen whether platinum will regain the price parity with gold we saw before the mid-2010s.

"But given the supply and demand dynamics, it is reasonable to be bullish on platinum in the near to mid-term. Given the price disparity with gold, this may signal a buying opportunity."