Rarer Than Gold, Looking to Shine

The abrdn Physical Platinum Shares ETF (PPLT) tracks the precious metal’s price. While the most direct investment route for platinum is via the physical market for bars and coins or the NYMEX futures that provide a delivery mechanism, PPLT holds physical platinum bullion.

At around $99 per share on Jan. 16, PPLT had $939.2 million in assets under management and traded an average of over 135,000 shares daily. PPLT charges a 0.60% expense ratio and is a liquid product that investors and traders can access via their standard stock market portfolios.

PPLT eliminates the need for storing physical metal and does not require the original and variation margin required by the futures market.

Platinum: Rare, Precious, Industrial

In 2021, the worldwide platinum supply was 6.2 million ounces. In 2022, it dropped to 5.22 million. Gold mine supplies were 3,065 metric tons or over 98.5 million ounces. In 2022, production likely exceeded 3,000 tons. Gold is a rare precious metal, but platinum is far rarer, with less than 6% of the annual gold mine supply

Platinum jewelry and investment demand have been a significant part of the demand side of the metal’s fundamental equation.

Meanwhile, platinum has many industrial applications because of its resistance to tarnishing and corrosion, its malleability and ductility, and its density and high melting point. Gold melts at 1,948 F, while platinum melts at 3,215 F.

The high melting point makes platinum a critical requirement for catalysts that refine oil, petrochemicals and automobile catalytic converters. The electronics industry uses platinum for computer hard disks and thermocouples. Optical fibers, LCDs, turbine blades, spark plugs, pacemakers and dental fillings require platinum. Platinum compounds are essential for chemotherapy drugs and medical imaging equipment.

Platinum Suppliers

South Africa is, by far, the world’s leading platinum-producing country, with Russia the second top producer. South Africa’s output is more than five times that of Russia’s. Zimbabwe is the third leading producer.

Output in South Africa and Zimbabwe comes from primary mines, while in Russia, it is a byproduct of copper and nickel mines in Siberia’s Norilsk region. Platinum is a small market, so even marginal supply changes can dramatically impact prices. The war in Ukraine, sanctions on Russia and Russian retaliation could impact platinum supplies in 2023.

Lagging Gold

Platinum once had the nickname “rich person’s gold” because it commanded a premium over its precious cousin.

Source: CQG

The quarterly chart above, dating back to the mid-1970, shows that nearby platinum futures traded mainly at a premium to nearby gold futures until 2015. Platinum reached a record high against gold at an over $1,100 premium in 2008.

Over the past eight years, gold outperformed platinum, with its premium passing $1,000 in 2020. On Jan. 16, February gold futures were $845 per ounce, more expensive than April platinum futures. Platinum has become less precious and gold more soover the past years.

Less Liquidity, More Volatility

As of Jan. 13, the total number of open long and short positions in the COMEX gold futures market was 499,412 contracts. Each futures contract represents 100 ounces of gold, making the open interest 49.9 million ounces with a value of more than $95.7 billion at $1,917 per ounce.

NYMEX platinum futures open interest was at the 72,101-contract level. With 50 ounces per contract, the total number of platinum long and short positions in the futures market was 3.61 million ounces, worth $3.86 billion at $1,071 per ounce.

Platinum futures are far less liquid than gold futures. Illiquidity can lead to increased volatility as bids to buy often disappear when prices fall, and offers to sell can evaporate during price rallies. Daily historical gold futures volatility stood at the 13.7% level on Jan. 16, while the metric in platinum futures was at the 22.7% level.

A Deficit & Potential Upside

Higher volatility and less liquidity could ignite an exciting rally in the platinum market in 2023, and supply and demand fundamentals favor the upside. The World Platinum Investment Council recently forecast that the platinum market will move from a surplus in 2022 to a 303,000 ounce deficit in 2023.

If platinum is going to rally, PPLT will go along for the bullish ride.

Source: ETF.com

The chart above shows the bullish trend of higher lows and higher highs in PPLT since early September 2022.

In 2022, nearby platinum futures posted an 11% gain, outperforming gold, silver and palladium, the other platinum group metal that trades in the futures arena.

Platinum could continue to be a hidden gem in the precious metals sector in 2023, and the PPLT will move with the metal’s price.