platinum – the “most precious” of the precious metals

Unlike nearly all metals and crude oil which are found throughout the world, important platinum deposits are basically limited to two general geographic regions. Naturally, platinum is produced as a by-product in several areas of the world, but this production source is very insignificant. Only South Africa and Russia have been blessed with what might be termed deposits of “industrial quantities” of the “Rich Man’s Gold.” South Africa is far and away the more important of the two as it accounts for approximately 80% of the total world’s annual mine production – and much more importantly 88% of the world reserves of platinum. In light of the metal’s extreme scarcity, it is not surprising that more than 90% of the world’s platinum production comes from only four mines: three in South Africa and one in the Russia.

Why is Platinum so precious and considered the rich man’s gold?

It is simply a matter of relative scarcity. Per the Platinum Guild International, platinum is the “most precious” of the precious metals for the following reasons:

(1) The annual supply of platinum is only about 130 tons – which is equivalent to only 6% (by weight) of the total Western World’s annual mine production of gold – and less than one percent of silver’s yearly mine production.

(2) Approximately 10 tons of ore must be mined – sometimes almost a mile underground at temperatures greater than 120 degrees Fahrenheit – to produce one pure ounce of the “so-called white gold.” Furthermore, the total extraction process takes six long months.

(3) All the platinum ever mined throughout history would fill a basement of less than 25 cubic feet.

(4) Relative to volume mined, platinum has many more industrial uses than either silver or gold. In fact more than 50% of the yearly production of platinum is consumed by industrial uses – unlike gold!

(5) Also unlike gold, there are no large inventories of above-ground platinum. Therefore, any breakdown in the two major supply sources would catapult the price of platinum.

Demand:

Platinum supply/demand dynamics are tight – and getting tighter every month. While the western world’s industrial demand is understandably a function of economic growth – which obviously increases at moderate rate – emerging countries demand for platinum is literally exploding. For example: China’s platinum consumption has grown apace with its annual industrial production increases. China’s future platinum demand alone will tax current production capacity of the four major mines.

Annual platinum consumption is divided into three categories: 50% industrial uses; 40% jewelry manufacturing and 10% for investment purposes. Inscrutably, the Japanese account for 95% of the platinum jewelry demand.

Outlook:

Growth in platinum consumption worldwide is expected to increase tremendously. Usage in established markets is increasing and new markets are constantly being developed; factors that promise to keep demand for platinum high and investment potential at a premium.