All That Glitters Isn’t Gold
PLATINUM IS BOTH A MONETARY ASSET AND AN INDUSTRIAL METAL
With gold breaking out to new highs, the persistent underperformance of platinum represents an extraordinary opportunity for contrarian hard money investors.
Platinum is both a monetary asset that is minted into coins by various sovereign mints and an industrial metal consumed in multiple important industries. With the Fed raising its inflation target from 2% to 4% while printing money, suppressing interesting rates, and monetizing sovereign and corporate debt, the preconditions exist of the “Mother of All Bull Markets” in gold and other hard assets.
With silver, palladium, and bitcoin pumping, platinum is attractive from a relative value perspective; Once platinum breaks through resistance at $1,000, I anticipate that platinum will rally towards the $1,600 level, and ultimately retest its all-time high.
In 1997, the U.S. Treasury minted oneounce platinum Eagles for the first time, marking the beginning of a powerful upswing that took up the platinum price more than five times what it was. During the 2000 – 2009 period, the automotive industry, as a result of numerous factors, including carefully planned machinations by the Russian mining giant Norilsk Nickel, made a major switch from platinum to palladium/ rhodium catalytic converters. This substitution led to a radical decline in the platinum/palladium ratio, a trend further exacerbated by the notorious Volkswagen diesel exhaust scandal of 2015, as diesel requires platinum. I played this trend, and shared it with John Albanese and Scott Travers, by loading up on 5-ounce rhodium bars when the spot rhodium price was $660; the subsequent jaw-shattering move in rhodium up to $12,000 evidenced the validity of my hypothesis.
In terms of the automotive market, a senior executive of a top German manufacturing company confirmed to me personally over lunch in New York that his company is preparing to market platinum-based catalytic converters for the 2021 and 2022 markets. Given the platinum/palladium ratio has declined from 5.1 in 2009 to 0.43 today, I believe that a massive rotation from palladium into platinum is imminent.
However, from the view of mainstream investors, platinum could “win the battle, but lose the war,” as the interrelated rise of electric vehicles (“EV”), “ESG” investing, and “Climate Change” concerns are likely to destroy demand for fossil fuel vehicles. This fundamental backdrop has catalyzed the chronic net short position in platinum futures held by non-commercial traders over the last 12 months.
This myopic view is ignoring the unstoppable growth of the Hydrogen Economy. Hydrogen Fuel Cells represent a viable challenge to EVs. The European Union recently leaked its ambitious long-term plan to subsidize and promote Hydrogen Fuel Cells and the Hydrogen Economy. Japan continues to push hydrogen as an economically and environmentally sound alternative to both fossil fuels and batteries. The huge and sustained increase in the stock prices of Hydrogen Fuel Cell related stocks, such as Ballard Power (NASDAQ: BLDP), Plug Power (NASDAQ: PLUG), and Nicola Corp (NASDAQ: NLKA), supports my bullish view on the Hydrogen Economy. As Hydrogen Fuel Cells require a catalyst and as platinum remains the ideal catalyst for Hydrogen Fuel Cells, platinum represents the key building block of the Hydrogen Economy. Conservative projections for hydrogen fuel cell deployments in China alone indicate 500,000 ounces of new platinum demand by 2030. I just got off an invitation-only conference call with the Russian natural gas giant, Gazprom, which disclosed its aggressive and historic plans related to hydrogen production and distribution. It is clear to me that all of the projections for hydrogen-related platinum demand are absurdly modest. In my view, given that the platinum market faces a 500,000-ounce deficit by 2025 (source: Sibanye Stillwater), a great battle is coming for control of platinum mines and above-ground platinum inventories.
The insane leveraged mob of lunatic Robinhood investors can access platinum through the ETFS Physical Platinum ETF. As an experiment, I just bought a small quantity of this exchange-traded fund (“ETF”) on the Robinhood platform. If the Robinhood mob ever wakes up to platinum’s attributes as both a “clean energy” play and an inflation hedge, in that case, they will pile into this ETF, forcing the ETF to buy platinum futures at a time when production from mines remains constrained by COVID-19.