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Paul Wilson recently took up the role of Chief Executive Officer at the newly created World Platinum Investment Council (WPIC). The Council was launched by a group of six platinum producers in South Africa, in order to further develop the global market for platinum investment.
Readers may know that our affiliate Sprott Asset Management LP manages one of the largest above-ground stockpiles of platinum in the world, in the form of the Sprott Platinum and Palladium Trust (NYSE: SPPP). For more information, click here.
What will the World Platinum Investment Council do? Their CEO Paul Wilson was kind enough to call me up and tell me what it’s all about:
“We are launching a new organization called the World Platinum Investment Council – an entity focused on helping investors. Platinum is already a serious investment asset but we don’t think it has been fully considered by many investors as it should have been. Part of the reason has, to date, been a lack of high quality market data and a perception of opacity. The purpose of WPIC is to shine a light on the market, giving investors access to high quality information that will help them make more informed decisions while increasing their understanding of platinum’s investment potential.
The purpose of WPIC is two-fold, to provide much better market data on platinum and, in due course, help facilitate new routes to invest in the metal.
We will provide data on supply and demand, as well as above-ground inventory information, on a quarterly basis – this is a first for the metal. Significantly, we will be presenting a much better analysis of above ground stocks than has been done previously. We are working with SFA Oxford in the UK, who are finalizing the first, independent quarterly analysis, which will be available on December 3rd 2014. Crucially, WPIC is opening up this data to anyone; it’s free and you will be able to sign up to receive it by visiting our website (www.platinuminvestment.com).
Currently, 36 percent of demand comes from automobile usage in catalytic converters. 34 percent comes from jewelry. Another 20 percent is used in industrial applications. Finally, 10 percent comes from investment. Demand has been rising by around 2 percent per year over the last 5 years, principally because of increased usage in jewelry and investment.
How do we get our data? We look at the basis for consumption in each category. We go to people who are working with platinum buyers, and we try to understand how much platinum they are using, how they use it, and how they plan on using it in the future. On the supply side, we will be talking to the miners and trying to get as much information as possible about how much platinum they produce, how much metal there is, and what they’ll be putting out in the future. It’s a detailed research task but one that will be a game changer in terms of market information for investors.
The information that will come out each quarter will be an analysis of supply and demand, and the above-ground stocks of platinum. We will also provide a next year forecast starting from mid-2015. We will then be looking at the investment performance for platinum – how it has appreciated in value over the years and served as an effective store of value. Platinum has appreciated over 20 years at a similar rate to gold and silver, and more quickly than global equities and equities and real-estate in the UK. Over the last 30 years, platinum1 has appreciated more than gold2, and a lot more than silver (ed. note: taking 1984 average prices to today November 20, platinum has risen from $357 an ounce to $1213, a 240% rise1. Gold has gone from $361 to $1,190, a 230% rise2. Silver has gone from $8.14 to $16.13, a 98% increase3)
I think that platinum has been treated as a niche product by investors in the past. Our improved data and perspective will broaden its appeal and will be of use to existing and new, sophisticated and regular investors.
On the sophisticated investor side of the equation, we’re looking to attract mutual funds, insurance companies, and others of that nature to invest in platinum. I think platinum is an asset that should be considered by high net-worth individuals in North America, Europe, and Asia.
Platinum should also be of interest to retail investors. The products that investors might be interested in are broad – they could be physical bars and coins, or exchange-traded products like the Sprott Physical Platinum & Palladium Trust. In China, for instance, we will look to set up ‘accumulation funds’ so that individuals can contribute an amount per month which would go towards the purchase of physical platinum bars which they could eventually take away and store.
We will also be looking at whether or not worldwide markets have suitable exchange-traded funds set up to help investors purchase exposure to platinum and, often, help hedge against their weak domestic currencies. If in some countries, more sophisticated products are needed for family offices or institutional customers, we will look to work with existing financial institutions to try to fill those gaps.
For all these types of investors, whether retail, institutional, or family office, we think we will provide a benefit with improved information on platinum.
Our group is backed and funded by the six largest platinum miners in South Africa. The idea is that more transparent numbers on world production, usage, and available supply will benefit all investors in platinum.”
As readers may know, platinum supplies have threatened to decline for some time now. Mines are not making enough money to stay open. For Rick Rule, this is the real underlying cause of the violent protests that occurred at platinum mines in the last year. Workers need to get paid a decent salary, but platinum mines aren’t generating enough cash to give them a raise.
Nick Holland, CEO of South African gold mining firm Gold Fields Ltd., echoed the same conclusion, saying that the prospects for higher salaries for the 280,000 mine workers was dim without higher platinum and gold prices.
Because platinum mines are becoming deeper and less economic (our in-house geologist Andy Jackson has explained why), commodity experts have been calling for higher platinum prices this year. They’ve been wrong. Platinum prices have remained low. This raises questions about how much supply is really out there and whether demand can outstrip available inventory. The new Platinum Council’s upcoming report is meant to shed some light on this question. Stay tuned for what we find out.
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By Henry Bonner
1 http://minerals.usgs.gov/minerals/pubs/commodity/platinum/550798.pdf
2 http://www.nma.org/pdf/gold/his_gold_prices.pdf
3 http://minerals.usgs.gov/minerals/pubs/commodity/silver/880798.pdf
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