Gold and silver are metals and financial assets. For centuries they have been monetary instruments and means of exchange. Platinum and palladium are rare precious metals, with the bulk of annual production coming from South Africa and Russia. The platinum group metals trade on the NYMEX because of their historical relationship with energy commodities. Platinum and palladium are crucial ingredients in catalysts in gasoline-powered automobiles and in oil refineries that crack crude oil into oil products, gasoline, and distillates.
Platinum has lagged behind gold and palladium prices over the past years. While platinum has been a financial commodity, it is much less liquid than gold or silver.
The old saying, every dog has its day, could be appropriate for platinum, as it is the dog of the precious metals sector when it comes to price performance. Platinum offers a compelling value compared to the other three precious metals, but it has yet to lift its head and move out of its long-term bearish trend.
The Aberdeen Physical Platinum Shares ETF (PPLT) follows platinum prices higher and lower as it holds physical platinum bullion.
The bearish trend in platinum
On October 24, since the turn of this century:
- Nearby COMEX gold prices moved from $288.50 to $1,660.50 per ounce, a 475.6% rise.
- Nearby NYMEX palladium rose from $449.20 to $1,901.50 per ounce or 323.3%.
- Nearby COMEX silver futures moved from $5.413 to $19.225 per ounce or 255.2%.
NYMEX platinum futures underperformed the other exchange-traded precious metals since the end of 1999.
The chart highlights that NYMEX platinum futures closed at the $430.20 level on December 31, 1999. At $922.30 per ounce on the active month January 2023 futures contract on October 25, platinum lagged gold, silver, and palladium with a 114.4% gain this century.
Meanwhile, platinum has made lower highs and lower lows since reaching an all-time peak of $2,308.80 in 2008, the last time the rare precious metal traded above the $2,000 per ounce level.
A thinly traded precious metal
Liquidity in the platinum futures is far lower than in gold and silver. On October 24, the total number of open long and short positions in the NYMEX platinum futures arena was 56,380 contracts. NYMEX platinum’s contract size of 50 ounces means that at the $922.3 level, the market’s total value was below $2.560 billion. The average daily volume in the futures arena is around 25,000 contracts worth around $1.15 billion.
Palladium futures are less liquid, with open interest of 6,946 contracts and an average of approximately 2,000 contracts changing hands daily. Palladium’s contract size is 100 ounces. At $1,901.50, the total value of the open long and short positions on October 24 was $1.32 billion, with around $380million in daily volume.
Meanwhile, gold and silver futures open interest was at the 444,410 and 137,971 contract level, respectively. The average daily volume in gold is approximately 175,000 contracts, and in silver, it is 75,000 contracts. The value of gold open interest and volume is over $73 billion and $22.2 billion. In silver, the levels are at $13.3 billion and $7.2 billion.
Platinum and palladium are far less liquid markets than gold and silver, which tends to exacerbate price variance. Over the past years, we have seen wide price swings in the palladium futures market as offers to sell disappear during rallies and bids to buy evaporate when the price declines. While platinum is less liquid than gold and silver, the trading ranges have not reflected the low liquidity level. Platinum has been an orderly market in a bearish trend over the past fourteen years.
Price action has disappointed investors
In 2008, the price action in platinum left a bad taste in investors’ mouths. The price reached a record $2,308.80 in March before plunging and falling 67% to $761.80 seven months later in October. Other precious metals declined over the same period, but the percentage losses in gold were far lower, as it dropped from $1,014.60 to $681.00 or 32.9% over the same period.
Platinum, like gold, has a history as an industrial metal and a financial asset. However, the price action in 2008 that created significant losses for investors may have been a root cause of platinum’s underperformance over the past years. Excessive volatility because of limited liquidity excludes platinum from many portfolios.
Moreover, platinum’s failure to sustain rallies when gold and palladium reached successive record highs over the past years has taken the shine off the platinum market.
Platinum remains at a significant discount to gold and palladium
At below $925 per ounce on October 25, platinum remains at a discount to gold and palladium.
Nearby platinum futures traded mainly at a premium to gold from the mid-1970s through 2014, when it fell to a discount. On the long-term charts, platinum futures moved to a nearly $1,150 premium to gold in 2008 and a $1,000 discount in 2020. On October 24, the nearby platinum contract was over a $700 discount to gold.
Platinum mostly traded at a premium to palladium from 1982 through 2017. In 2008, platinum was over $1,600 per ounce more expensive than nearby palladium futures. In 2021, palladium rose to a price over $1,700 per ounce more costly than platinum, and was at an over $1,100 per ounce premium on October 24.
Platinum has been the weakest precious metals sector member and a dog for investors over the past years. However, even the mangiest dogs can have their day in the sun.
Platinum is a rare metal with financial and industrial applications. Limited liquidity may only turbocharge its price action on the upside when investors decide that platinum’s value proposition is the most compelling in the precious metals area.
PPLT is the platinum ETF product
The most direct route for a risk position in platinum is via the physical market for bars and coins. The NYMEX futures provide a delivery mechanism, making them a viable alternative for investors and traders.
At $85.45 on October 25, PPLT had $1.016 billion in assets under management. The ETF trades an average of 116,205 shares daily and charges a 0.60% management fee.
The most recent rally in platinum futures took the price of the January contract from $827.30 on September 28 to $949.80 on October 24, a 14.8% rise.
Over the same period, the PPLT ETF rallied from $78.62 to $86.80 per share, or 10.4%. PPLT only trades when the US stock market operates. Since platinum trades around the clock during the week, the ETF can miss highs or lows when the stock market is closed.
PPLT tracks the platinum price. A long position in platinum is a contrarian approach to precious metals. Past performance is not necessarily an indicator of future performance, which could be the best reason to consider adding platinum, the rare precious metal, to your portfolio. PPLT allows exposure for investors in their stock market accounts.