Is platinum at a 22% discount?

Sean BowerPrecious metals can be a funny thing. Gold is one of the most coveted substances in the world, yet its main uses are only for investing, jewelry, and as a conductor in electronics.

On the flip side, a metal like silver has prevalent uses in a number of industries in addition to jewelry and investing, but it has a much lesser ‘value’ than gold. Go figure.

And right now another funny thing is happening in the realm of precious metals: platinum is now cheaper than gold—a rarity for many reasons.

Is platinum just cheap right now? Is gold soaring? Should you invest in the ‘discounted’ platinum? What is causing this situation? It’s time for answers…

As of yesterday, the spot price of gold was $1,193.60 while the spot price of platinum was $1,156.00.

For a precious metal that normally sits above gold by a significant margin, platinum has certainly given me a reason to dig deeper into the current state of these precious metals and see what’s really going on.

First of all, a platinum price lower than that of gold often coincides with volatility and turmoil in the economy. That’s what we’re seeing right now in the stock market, which is now experiencing more quick ups and downs with fewer long spells of ascent.

Platinum’s use as a main (and now often required) component in catalytic converters in automobiles lends itself to a relatively reliable gauge of the economic pulse.

But is that just the result of supply and demand for platinum that’s been affected by an abnormal situation?

To start, it’s worth noting that there is actually more platinum in the earth’s crust than there is gold. However, gold is mined much more heavily than platinum is, which makes platinum a more rare metal in our eyes.

Moreover, platinum production is much more concentrated than gold’s with roughly 80% of the platinum supply coming out of South Africa.

Because of that, the source of platinum’s price reduction could very well be a result of South Africa’s mineworkers’ strike that lasted about 5 months last year (approximately 60% of the mine supply was out of operation at that time).

But since a settlement was reached in June of 2014, platinum production has again picked up, which in turn has raised the supply. Basic economics tells us that increasing supply versus stagnant demand will decrease the price, and that could very well be all that’s happening here.

Since June, platinum exchange-traded funds show a drop in the price per share from $145 to $112, a 22% decline.

If that’s the case, this rarity in pricing between platinum and gold could mean that platinum is at a significant discount right now in the wake of the miners’ strike. And a return to the normalcy of a higher price for platinum for gold, which many expect as production and demand normalize, would mean those who get in on platinum now could stand to make big money…

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