Platinum: A Structural Wealth Opportunity, Not a Speculative Trade
The swings in market sentiment are truly extraordinary.
At the highs, investors are consumed by euphoria and blind bullishness. At the lows, sentiment turns toxic, investors capitulate, and they effectively throw the baby out with the bathwater.
Yet the facts remain very clear.
Precious metals have outperformed the major equity indices and housing markets over the last 26-plus years. Yet despite that performance, the data and mathematics still show the sector remains deeply undervalued and exceptionally under-owned.
Bull markets never end with non-participation.
Now we are being told that Kevin Warsh, the new Fed Chairman, is the modern-day Paul Volcker, the man who will supposedly crush inflation and return the Fed’s balance sheet to healthy, pre-GFC “normal” levels.
Really?
How exactly does Warsh shrink the Fed’s balance sheet while dumping U.S. Treasury bonds into a market already choking on supply? Alongside a political leadership class across both sides of the aisle addicted to massive fiscal debt expansion.
The maths simply does not work
There is no realistic private-sector or foreign sovereign demand large enough to absorb that level of Treasury debt issuance without serious market disruption. The only way the equation balances is if the U.S. Treasury effectively monetises the asset side of its own balance sheet (a.k.a., deep currency devaluation).
Meanwhile, foreign central banks and sovereign wealth funds continue to reduce exposure to U.S. debt. Visible foreign sovereign holdings of U.S. Treasuries have reportedly fallen to around US$2.9 trillion, down from US$3.2 trillion just eight months ago.
So let’s be honest with each other.
The idea that the Fed can aggressively shrink its balance sheet, control inflation, keep Treasury markets stable, and magically return to a pre-GFC monetary world is fantasy economics.
Platinum — Medium to Long-Term Picture: Why I Believe I Cannot Lose Money
I am not in the speculation game!
My background across the investment sector over the last 40-plus years has trained my mind to focus on the larger, overriding investment cycles, particularly my track record over the last 25 years. I am agnostic on particular asset classes, the underlying macro dictates the cycles and my views.
My objective has always been simple: preserve and grow my own wealth and my clients’ wealth, especially now, through one of the most dramatic major cycles now unfolding over this next decade.
Major investment cycles are not measured in weeks or months. They are measured in multi-year and often decade-plus timeframes.
That subject on cycles deserves a separate article, and if enough people ask me, I will write one.
So why do I say I believe I cannot lose money in platinum over the medium to long term?
The answer is simple: the world is now operating in a structural supply-demand deficit.
Put plainly, global industrial demand for platinum is already outpacing global supply, 3rd year in deficit and forecast to be in deficit every year compound into the 2030’s. That is before we even properly account for the strategic accumulation and hoarding taking place by major players, with China being the obvious elephant in the room.
So the market has only two real options:
Either we see serious demand destruction, which is highly unlikely at today’s depressed prices, or we see a major increase in supply.
And supply is not coming.
That is the critical point.
CAPEX across the platinum production sector is negative globally. To justify enormous new investment into fresh ore-grade projects, producers need platinum prices to remain significantly above all-in sustaining mine production costs for a long period of time.
That is simply not happening yet.
The investment side of the market has also been scared away by extreme price volatility. Mining investors do not commit billions into new production on the back of unstable weak pricing, especially when it can take 7 to 10 years to bring new ore-grade reef production properly onto the market.
The recent correction back towards the US$1,500 level , only marginally above the key all-in sustaining mine cost area, has done real damage to any new supply investment thesis.
So the conclusion is clear.
• Demand is structurally very strong.
• Supply is structurally constrained.
• New production is many years away.
• CAPEX is not coming in size.
• And the current price is still nowhere near high enough to incentivise the supply response the market needs.
So where is all this supply to fill the annual deficits going to come from exactly?
That is why, over the medium to long term (let’s call it 3 to 5 years), I believe platinum remains one of the most compelling opportunities in the entire precious metals complex.