Ride the Platinum Profit Rocket
We’re headed into a supply squeeze for platinum. Get on the right side of it to ride your own profit rocket.
First, you need to know that platinum is rare. Consider that the world’s annual output of gold was 2,700 metric tons last year. Platinum output is a mere fraction of that, at 150-200 tons.
If anything happens to the supply of platinum, this metal can really heat up.
Well, find your oven mitts, because the heat is on!
Platinum already went into a supply deficit in 2012. It got worse in 2013, rising 40% to about 605,000 ounces.
So how does supply look this year? Not good. The supply/demand situation may get another 10% tighter due to a bunch of factors …
Russian Supply Squeeze
Russia provided 13.6% of global platinum supply last year, according to Johnson Matthey.
This week, Russia annexed Crimea. That’s a part of neighboring Ukraine that was historically part of Russia. As a result, geopolitical tensions with Russia are boiling over. Western nations have threatened sanctions against Russia. This may put a crimp on supplies of both platinum and palladium.
South African Strike
South Africa mines 70% of the world’s platinum. Now, 70,000 union miners at the big platinum mines in South Africa are on strike. This is already the single-biggest work stoppage in that country since the end of apartheid in 1994.
And the workers seem to be settling in for the long haul. Appeals from management and through traditional leaders have had no impact. The workers want a much bigger share of the profits. The companies say there just isn’t that much profit to share.
The companies involved have some stockpiles. But one of the biggest miners, Impala, says its stored platinum will run out at the end of this month.
And that could be dynamite for platinum prices.
So you can see that supply is squeezed. Meanwhile, demand is getting stronger all the time.
More than half of the world's annual platinum output is used in auto catalytic converters. And that demand could be about to head higher.
New emissions rules in Europe, set to take effect from September 2014 to 2015, will significantly boost the amount of platinum required in catalytic converters in cars sold in Europe.
That’s because Europeans drive more diesel vehicles. Diesel requires platinum for emission control; gasoline engines can often get by with palladium for catalytic converters.
There are plenty of other uses for platinum -- jewelry, electronics, investment and more.
Platinum holdings in physically backed exchange-traded funds have hit a record high. ETFs backed by physical platinum metal now hold a record 2.215 million ounces. That’s 69 metric tons.
Heck, the U.S. Mint just announced it is going to start selling platinum coins again. That’s more demand.
How You Can Play This Trend
You could buy a platinum miner. But investing in platinum is as easy as buying ETFS Physical Platinum Shares (NYSE: PPLT).
This fund is backed by platinum bullion, and tracks its movements. It has an expense ratio of 0.6%. Looking at the chart, you can see it has trended higher in the short-term. In fact, it seems to be breaking out.
My price target on this fund is $166.20.
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