Gold Also To Remain A Store Of Value

A store of value is an asset that can retain purchase power and can be retrieved to be used again at a later time.

Or more simple : a store of value is an asset that maintains its value rather than depreciate.

Gold until now has been the best store of value in spite of some dramatic price corrections.

In the last hundred years, it has maintained its value over the long term. However, these price corrections have lasted for many years causing much pain to many investors needing cash.

Gold is now not only priced at all times highs, but also nearly three times the average production price.

At this level the price could still go up but a substantial price fall cannot be excluded.

One of the main reasons it reached its high price is a. o. the unusually substantial buying by several central banks. This is the more remarkable, as several central banks have been sellers in the past and this could happen again.

We think that gold, probably with large ups and downs, will remain a sought-after store of value for the public at large, central banks and investors.

But…

PLATINUM POTENTIALLY SAFER STORE OF VALUE

The time has arrived to look at another store of value, which shares the many qualities of gold and probably has more upside potential.

It is our sincere conviction that it will only take a small change of mind set before platinum will start to outperform gold as a store of value.

PRODUCTION PRICES OF GOLD AND PLATINUM

Gold now sells at nearly 3 times the production price.

This means that gold can lose 2/3rd of its present price before production supply diminishes.

Platinum now sells at close to the production price.

This means that production supply would diminish if prices would decrease.

As a matter of fact, some platinum mines have already closed or diminished production.

INFLATION SENSITIVITY OF PRODUCTION COSTS OF GOLD AND PLATINUM

Inflation of both energy cost and labour cost has an outsize effect on the production cost of both gold and platinum, because the production of both products is very labour and energy intensive.

GOLD MARKET PRICE SENSITIVITY TO PRODUCTION COST INFLATION

Gold production cost is only 1/3rd of the market price and therefore inflation does not necessarily increase the market price.

PLATINUM MARKET PRICE SENSITIVITY TO PRODUCTION COST INFLATION

Platinum production price is close to the market price. Therefore, inflation can be expected to push up the market price even in case of constant or lower demand.

SUPPLY STABILITY OF PLATINUM

Gold is mined in many countries, well spread around the globe.

Platinum, contrary to gold, is mined for the greater part in one country (South Africa) and in smaller quantities in Russia and Canada.

As a consequence, problems in only one of these countries can have an outsize effect on the supply of platinum and the platinum market price.

PRODUCTION PRICE STABILITY

Contrary to most gold mining locations labour and energy costs in South Africa are low and can be expected to rise substantially in the future. This will cause the production price to increase and push up the market price of platinum unless the mining process can be made more efficient.

The aforementioned issues are only a few of the many in favour of platinum. Our opinion is not based on one, but on many considerations, which we shall share with you in our next articles.