The Platinum / Silver Spread Offers Security And Profit Potential

seekingalpha05-05

Platinum has underperformed as an investment in the past 10 years, but hydrogen fuel cells remain a core long-term driver where palladium should provide less interference.Platinum has significantly ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Platinum / Silver Spread Offers Security And Profit Potential\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-05 13:11 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4689542-the-platinum-silver-spread-offers-security-and-profit-potential><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Platinum has underperformed as an investment in the past 10 years, but hydrogen fuel cells remain a core long-term driver where palladium should provide less interference.Platinum has significantly ...</p>\n\n<a href=\"https://seekingalpha.com/article/4689542-the-platinum-silver-spread-offers-security-and-profit-potential\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4689542-the-platinum-silver-spread-offers-security-and-profit-potential","article_id":"2433109291","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/182493676/image_182493676.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2433109291","pubTimestamp":1714885883,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Platinum has underperformed as an investment in the past 10 years, but hydrogen fuel cells remain a core long-term driver where palladium should provide less interference.Platinum has significantly la","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"铂/银价差提供了安全性和利润潜力","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BLDP":1,"GLD":1,"GLTR":1,"PALL":1,"PLTM":1,"PPLT":1,"SLV":1,"USD":1,"USD.AU":1},"content_text":"Platinum has underperformed as an investment in the past 10 years, but hydrogen fuel cells remain a core long-term driver where palladium should provide less interference.Platinum has significantly lagged the recent rally in precious metals, and the disconnect with the price is silver is especially unusual.I'm complementing my long-term core platinum holding with an intermediate-term pair trade that is Long platinum and Short silver.   JacobH/E+ via Getty ImagesI've long been a fan of platinum (NYSEARCA:PPLT) (NYSEARCA:PLTM) (XPTUSD:CUR) as an investment. Performance of this metal has been absolutely terrible though, and nobody has made profits on platinum in the past 10 years unless they were opportunistic traders. I continue to believe that platinum will have its day and that it's a safe place to park money in a hard asset, especially compared to gold and silver which have seen more speculative flows. I have a very long-term mindset to my core investment in platinum, but there's a more intermediate opportunity in play. At this moment, a Platinum/Silver spread trade is especially compelling. These two precious metals play second fiddle to Gold (GLD), and that fiddle has held in a tight pattern until recently. Performance of these 2 metals has been highly correlated up until the past couple months when silver has taken off. I don't expect that diversion to last, and recommend investors take a look at a Long Platinum / Short Silver pair trade. First let's take a look at the individual investment merits of platinum and the trading vehicles available to investors. Platinum Investment Merits Platinum is the rarest of the major precious metals (rhodium, sorry you don't qualify), with only about 6 million troy ounces of annual production, ignoring volume from recycling. Gold, by contrast, sees some 80+ million troy ounces of production annually. To put this into greater perspective, just ~ 4 years of gold mining at the current rate of production adds up to the total amount of platinum ever extracted (~320 million ounces). Platinum is, obviously, even more rare than silver (NYSEARCA:SLV); about 100 times more rare. While rare might be good in collecting sports memorabilia, I've come to understand that platinum's scarcity can actually work against it. Governments around the world searching for a physical store of value still flock to gold by default, partially because there's enough meaningful volume. A foreign government wishing to convert (USD) $10 billion into the holding of physical metals would eat up nearly 2 whole years of global platinum production, but just ~5% of annual gold production. Generally, platinum is just too rare to be used as monetary reserves by governments, and that's a weakness. Platinum Uses Some 50% of platinum demand comes from the auto sector, as the metal is the critical component of catalytic converters. Obviously the proliferation of Electric Vehicles has contributed to a dismal view of the metal amid fears that catalytic converter demand will disappear. Some of that has already happened of course. Future reductions in auto sector demand for platinum are already expected and, in my view, sufficiently built into the market price. Secondary demand for platinum comes from the medical device space, chemicals industry, jewelry and for investment. Investors fretting about a decline in industrial demand for platinum shouldn't forget that gold has just a tiny amount of industrial use. In my experience, jewelry demand especially is quite elastic, and buyers swoop in when platinum prices dip, especially in Asia. Platinum Demand By Application (Mining.com)You'll see that Platinum moved from a 2022 surplus to a 2023 production deficit. Mining.com forecasts another deficit in 2024. Platinum to be Backbone of Fuel Cell Industry, Not Palladium Platinum serves not only as a catalyst to reduce pollution emanating from internal combustion engines ((ICEs)), but also to generate power from hydrogen in fuel cells. Growth in the fuel cell industry will likely be a major catalyst (no pun intended) for the price of platinum. One key reason platinum has struggled over the past ~decade is due to industrial substitution from platinum into its sister precious metal palladium (PALL). Both platinum and palladium can serve as catalysts for ICEs, but automakers/engine manufacturers turned in favor of palladium thanks to its price advantage for most of the millennium. As illustrated in the below chart, palladium spent a decade or so (~2003 - 2013) at less than half the price of platinum. Catalytic converters for many models were thus designed for palladium, not platinum, as automakers sought to minimize their production costs. This resulted in palladium stealing demand away from platinum. Despite palladium prices soaring to multiples the price of platinum beginning in 2018, the auto industry didn't substantially switch back to platinum in recent years given the costs associated with retooling engines. Palladium was essentially locked-in. Palladium / Platinum ratio (BullionByPost)As the hydrogen fuel industry develops, there are several strong reasons why platinum should easily be favored as the backbone for fuel cells:  Palladium is no longer cheaper than Platinum. The supply crunch that occurred in palladium from 2018-2022 is surely to leave a sour taste in the minds of industrial buyers. South Africa has been overtaken by Russia as the largest producer of palladium, with some 40% of global palladium production coming from Russia. By contrast, only ~10% of platinum production comes from Russia. Given the choice, manufacturers are sure to shy away depending on Russian supply in their industrial designs these days, providing a clear edge to platinum. My understanding is that platinum is clearly the preferred conduit of hydrogen to energy.  I wouldn't be surprised if the above arguments are currently overlooked by many precious metal investors. I'm confident that the days of palladium reign over platinum demand are over. I provide more specific analysis on the prospects for fuel cells in my recent article on Ballard Power (BLDP).  Platinum Supply Considerations The fact that nearly two-thirds of platinum production comes from South Africa should not be overlooked. The influence from that one country on platinum prices is substantial. There are both downside and upside risks here. Notably, societal pressures against layoffs, as well as a weakening South African Rand (ZAR:USD) have resulted in major South African platinum mines continuing to operate at high production levels even amid lower USD market prices. Data by YCharts South Africa GDP (USD) (Statista)-Source: Statista.com According to data from Statista, South Africa's economy has had a pretty bumpy ride over the past decade but is showing signs of perking up. This may help stabilize the Rand. A strengthening Rand would increase pressures on platinum miners to shelve less economical platinum mine shafts at today's prices, which would obviously provide a boost for market prices. Platinum prices also seem to periodically get a boost during periods of labour strife at South African mines. Worker strikes are not uncommon, and safety issues can also result in production closures. Technical Picture Although I don't generally place a lot of weight on charting, when it comes to platinum I've noticed the technicals tend to have a clear influence. Platinum Chart (Seeking Alpha)I have a mixed views of Platinum's chart. The recent trend of higher lows is something for bulls to hang their hat on, although the double-top at the psychological $1,000 level is problematic. Investing in Platinum Platinum is most accessible to investors via the 2 ETFs that track the metal; the abrdn Physical Platinum Shares ETF (PPLT), and the much smaller GraniteShares Platinum ETF Trust (PLTM). Both own physical platinum in vaults, so owning either of these ETFs saves investors from the risk of rolling futures that would be unavoidable with other commodities like energy or agricultural products. PLTM likes to promote that it's the lowest cost way to invest in platinum, and while a 0.5% expense ratio is indeed the best, it's only slightly lower than PPLT's 0.6% expense rate. A wide bid-ask (%) spread worked against PLTM for many years, but that has narrowed recently - it's not unusual to see a spread of just a penny or two now. I own portions of both ETFs. Investors can also gain exposure to platinum via the Futures traded on the CME. The downside of going Long the Futures is the value erosion suffered from rollovers due to the contango curve. Investors can currently expect to take a 4%-5% annual hit from rollovers, so the Futures are substantially less attractive than the ETFs (for longer-term holders, at least). Platinum versus Silver I hold a very large core holding in platinum, as I believe it's a great store of value here with potential upside. Of course, I won't hide from the fact I was bullish on Platinum a decade ago prior to working for SA. (For anyone who invested on my platinum advice in 2013 and was waiting for my update article, sorry - here it is 11 years later!) I do make small trades in and out of platinum as the price fluctuates, and I plan to continue doing so - physical platinum yields nothing on its own, but I've been able to make some small profits even when the price goes nowhere.  Lately I've been amazed by the rare disconnect between the value of platinum and silver (SLV). Both of these industrial precious metals play second fiddle to gold but to some degree serve as a proxy for the precious metals space. Use of silver is more broad based, with various industrial applications including mobile phones, solar panels, and batteries. Of course, silver, like platinum, is also used in jewelry. With the obvious exception of catalytic converters (platinum), there are a number of common use industries for the two metals, such as medical devices for example. From a market price perspective, these two industrial precious metals have tended to move in close correlation. In fact, I've learnt to expect that if I see a rising silver price quote on TV, platinum has almost for certain risen that day as well. Until recently at least. I considered calculating an actual correlation coefficient for the platinum-silver pair but it is wholly unnecessary. One look at this 3-year chart tells the story. Relative movements of platinum and silver prices have been akin to a man walking his dog; the path weaves a bit but they're almost heading in the same direction. Platinum-Silver chart (Seeking Alpha)In the past ~3 months though, silver has opened up a surprising gap on platinum, breaking a long-standing tight correlation. In researching silver's breakout, I haven't come across any convincing fundamental reason that shouldn't also play favorably for platinum. Growing industrial usage, jewelry demand, and geopolitical concerns should benefit both metals. South Africa-specific developments are the one thing that could explain a sudden wedge between platinum and silver, but I haven't seen anything especially consequential, and the Rand (USD:ZAR) (ZAR:USD) has been mostly rangebound recently. Medium-Term Recommendation Platinum has remained an out-of-favor precious metal; almost chronically. While I continue to believe in the long-term fundamental prospects, it's unknown when those will take hold. But it's the recent rally in the precious metals space (GLTR) that has caught my immediate attention. Platinum didn't immediately follow the jump alongside the recent power moves in gold and silver. I wouldn't be surprised if the technicals were partially responsible, with platinum seeing strong resistance at the $1,000 level. But I believe it is just a matter of time before it pushes through. I believe this opens up a near-term opportunity. Platinum hasn't historically performed well during the summer months, but I think a platinum move through the $1,000 level is overdue. Furthermore, in my experience, due to lesser liquidity, technical breaks in platinum tend to carry quite far. I'm looking for a move up to the $1,090 range (~$99 for PPLT, ~$10.50 for PLTM) which is where longer term resistance appears to set in. Failure for platinum to shoot through $1,000, in my expectation, would likely be accompanied by silver being unable to hold it's gains. I therefore recommend playing the spread here by going Long physical platinum and Short physical silver, ideally through the corresponding ETFs. I'm looking for a 15% return on the pair over the next 3-6 months. Long-Term Recommendation For the reasons mentioned above, I think skeptics are underappreciating platinum's place as the backbone of hydrogen fuel cells whenever growth takes hold. The long-term picture looks favorable to me, especially with palladium sure to take a back seat during the hydrogen revolution. While I've increased my exposure to platinum by about 20% with a hedge against silver, and also collect small trading profits from in-and-out trades, I hold a very large core platinum position and expect to do so for years to come unless platinum doubles in short order.  The risks to the long-term prospects for platinum, in my opinion, are on the supply side. A major collapse of the South African economy (and correspondingly the Rand) would be the number-one danger. A secondary risk is any unforeseen significant rally in the price of palladium, which could drive additional production of PGMs and platinum as a byproduct. In recent years platinum supply was boosted by PGM miners upping production on palladium's soaring value.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2433109291"}