Platinum Beyond Industrial Use

Platinum Beyond Industrial Use

The IMF and subsequently most central banks so far categorize platinum as an industrial metal, limiting its eligibility for purchase under central bank mandates. The IMF’s view rests, amongst others, on the notion that platinum’s liquidity is lower than gold, and its price history is more closely linked to industrial cycles than investment demand.

Yet, platinum shares many properties with gold, including durability, scarcity, and significant a historical role in value preservation and coinage. Its highly recyclable nature, ductility, and inertness, coupled with a purity above 99.95%, reinforce its suitability not only for industrial use but also for investment use and potentially in central bank portfolios.

The Production Cost Support

While gold has experienced long periods of central bank accumulation with limited selling, regardless of cost price. Platinum is distinguished by its connection to production cost, contrary to gold which is now four times its production cost. Historically, when platinum prices decline below production cost, platinum mines will reduce production or even close as it has been recently the case, thus providing a price floor.

Contrary to platinum, gold’s liquidity can become “irrelevant” if already one central banks decides to sell. Such decision would destabilize the gold market and undermine its price as was illustrated by the sale by the Bank of England’s platinum in the early 2000s.

Platinum as a 21st-Century Reserve Asset

Formal recognition of platinum as a monetary asset by the IMF would empower central banks to diversify reserves, tapping into a metal defined by utility, scarcity, and fundamental value.

With the blessing of the IMF, central bank purchases would be a great stimulant for investors looking for a store of value to invest in platinum or exchange some of their gold holdings for platinum.

If central banks and in particular the Reserve Bank of South Africa would be allowed by the IMF to add platinum to their reserves it would be hugely beneficial for South Africa.

This country produces >75% of worldwide platinum production. An increased demand for platinum as a consequence of the recognition by the central banks of platinum as a store of value would lead to an increase of platinum’s price. This would not only increase the profits of the platinum mines, but also allow them to pay fairer wages to the miners, even employ additional miners instead of laying them off and last but no least give substantial support to this South African economy.