Platinum Spot Price

The pricing of platinum spot rates is a result of the intricate interplay between supply and demand dynamics on a global scale. Reflecting the immediate market worth of one troy ounce of platinum (31.1035 grams), the spot price is influenced by various factors such as industrial usage in catalytic converters, jewelry demand, economic indicators, geopolitical events, and mining output. These prices are determined through trading activities on different commodity exchanges, with shifts shaped by real-time market conditions and investor confidence. 

Key participants, including miners, investors, and speculators, contribute to the ongoing process of price discovery, reacting to an array of economic and geopolitical variables impacting the platinum sector. While the COMEX (Chicago Mercantile Exchange) holds sway over gold and silver prices, its impact on platinum rates is generally viewed as less pronounced compared to the LPPM (London Platinum and Palladium Market) and NYMEX (New York Mercantile Exchange). 

Platinum trades less actively on the COMEX relative to gold and silver. Although the NYMEX, a constituent of the COMEX, offers platinum futures contracts contributing to price determination and trading, the volume and liquidity in platinum futures typically lag behind those of gold and silver. 

Conversely, the LPPM assumes a critical role in establishing benchmark prices for platinum through mechanisms like the Platinum Fix. This benchmark holds widespread acceptance in global transactions, thus influencing platinum pricing on a broader scale. 

While the COMEX facilitates platinum futures trading, its impact on platinum prices is generally regarded as secondary to the LPPM and NYMEX. Market participants tend to closely monitor the LPPM's benchmark price and NYMEX's platinum futures contracts for price discovery and risk management within the platinum market. 

Platinum vs. Gold Prices

For some investors, trading platinum and gold mirrors the approach taken with the silver to gold ratio. Historically, platinum has commanded a higher price than gold, with the platinum to gold ratio averaging around 0.72 over time. However, in the last decade, gold has outpaced platinum, driven by the expansion of the money supply due to federal monetary policies like quantitative easing. Platinum's demand is primarily driven by industrial uses, notably in the automotive sector, while gold's demand stems largely from its role as a financial asset. Although both metals often move in the same direction, the fiscal landscape of the past decade has notably favored gold. Platinum investors often cite its historical price relationship with gold as a crucial factor to consider, suggesting either potential for platinum to rise or a potential downward correction for gold to align with historical averages. 

Platinum's Role in Automotive Applications

Platinum has long been integral to the automotive industry, with reports indicating that over 80% of annual platinum supply is directed toward meeting the demand for cleaner transportation, particularly in the auto sector. This usage spans various components, including spark plugs, catalytic converters, and ancillary industries like glass production. Catalytic converters, mandated in many countries globally, contain approximately 3 to 7 grams of platinum lining. This translates to around 9.6% to 22% of one troy ounce (31.1035 grams), representing a value of approximately $92 to $211 at a spot price of $957 (current at the time of writing). Consequently, automotive companies may seek alternative metals such as palladium when platinum prices surge, and catalytic converters can become targets for theft due to their platinum content. 

Should Concern Arise Over the Electric Vehicle Revolution?

Some advocates for platinum express apprehension regarding the impact of the electric vehicle (EV) market on long-term platinum demand, given the absence of catalytic converters in EVs. However, several factors suggest this concern may be overstated. 

Firstly, EVs cannot entirely supplant all vehicles on the road. Charging infrastructure poses a significant challenge, with a single fast charger requiring an expansive 40 acres of solar panels on a sunny day to fully charge an EV. Moreover, the power needed to rapidly charge a semi-truck within thirty minutes is equivalent to that used by roughly 4,000 single-family homes, a technology still under development. Additionally, auto manufacturers are grappling with the economic realities of EVs, as consumers display reluctance to relinquish gas vehicles due to higher initial costs, increased maintenance issues (up to 80% more), range anxiety, and lower resale values. Recent trends indicate a scaling back of forecasts and investments by auto manufacturers to align with market demand. 

The limitations and drawbacks of EVs suggest they cannot entirely replace existing infrastructure. However, fuel cell electric vehicles (FCEVs) utilizing hydrogen may offer a viable alternative. Toyota has invested in this technology with the Mirai, although recent promotion has been minimal. FCEVs utilize platinum in significant quantities, and fleet vehicles are leading their adoption due to quick refueling times, absence of charging requirements, and favorable unit economics for refueling infrastructure. Moreover, the infrastructure required for a hydrogen-based auto industry also relies on platinum. 

Platinum's Performance Over Time

Platinum's trajectory has differed from that of other assets, experiencing declines while gold and silver have thrived. In 2008, platinum spot prices surged, reaching an all-time high of over $2,100 per troy ounce (31.1035 grams) in March, coinciding with the collapse of Bear Stearns. This uptrend had been ongoing since 2001. However, as the financial crisis intensified, platinum prices plummeted for a brief period before rallying until 2011, followed by a gradual decline. Over the past several years, platinum has traded within the range of $800 to $1,200 per ounce (31.1035 grams). A potential shift to an upward trajectory in platinum's price performance could occur if supply constraints or sudden changes in demand arise. 

Platinum's Supply Dynamics

Platinum derives its supply from recycling and mining, with recycling being crucial due to its rarity and the limited number of platinum mines globally. Platinum is approximately 30 times rarer than gold and is mined at about 1/15 the quantity of gold. Roughly 25% of platinum supply comes from recycling, while over 70% originates from mining operations in South Africa, highlighting a concentration risk. In 2023, South Africa faced significant electrical grid failures, disrupting mining operations and reducing platinum supply. This trend is expected to continue, with consecutive supply deficits projected through 2027. 

Why Premiums Must Exist

All platinum bars, rounds, and coins carry a premium, a fixed percentage above the spot price, covering costs throughout the supply chain. This premium is essential for the existence of a market for investment-grade bullion. Investors should anticipate paying a slight premium above spot for platinum bullion. Beware of deals that seem too good to be true, as offers priced below spot may indicate counterfeit products. Exercise caution and skepticism when encountering such deals to avoid falling victim to fraudsters.