Billions of years ago, the earth was bombarded with asteroids that deposited platinum group metals (PGMs) deep in the earths core. There are only a few places on the planet where the PGMs have worked their way close to the surface.
PGMs are the rarest commodities on earth. They include platinum, palladium, rhodium, iridium, ruthenium and osmium. These metals are industrial, strategic, and precious. They are essential for the functioning of the civilian and military economy. There is no substitution, outside of the group, and all are trading in deficit. Production can only be increased a few percentage points a year, and there is very little above ground inventory. Russia does have the only strategic stockpile and in many ways the West could be beholden to this supply, limited relative to the market need, as it is.
PGMs have catalytic and electronic properties, can withstand extremes of heat and cold, have excellent conductivity, are inert, oxidation and corrosion resistant and have a unique biocompatibility.
And, most significantly, they are extremely rare. Platinum, for example, has an annual supply of just 8 million ounces, including recycling, which is worth only $8 billion. Rhodium supply is about 1 million ounces a year. Palladium supply is just 10 million ounces. In a world where monetary supply is about $100 trillion, and a single pension fund, like the California Teachers has assets approaching $300 billion, the market value of these essential metals is truly tiny.
Typically the use of the PGMs in any application represents a small percentage of the overall cost, and given that they are essential, industrial users have no choice. Generally, I believe that the industrial market place has no clue as to how vulnerable their just in time production cycles are, and will be forced to try and build inventory, with higher and higher prices. The same applies to the PGM’s strategic use, where governments around the world, other than Russia, have limited inventory. Meanwhile, investors are barely at the beginning of recognizing the inherent value of the platinum group metals, and so far are more motivated by their general view of gold and precious metals, than of the particular supply characteristics in this marketplace.
That’s not a truly fair comment for rhodium, now trading at $21,750 an ounce where the deficit supply and increasing demand is leading to higher pricing. Or for Palladium, now $2400. Or Iridium, currently $3250. But the bids for these metals are more from the industrial market, than from investors. Rhodium’s annual supply is worth today about $21.75 billion. Palladium’s 10 million ounces is valued today at $24 billion. While these are real numbers, any significant increase in demand, whether from business or government seeking to build inventory, or from investors, will lead to explosively higher pricing.
My view is that ALL of these metals are remarkably cheap, and will be dramatically higher. Not only do they have the benefit of the forces that I believe will lead to higher gold prices, but their utility throughout industry will lead to higher prices as seemingly unlimited fiat flows spur the world’s economies.
As I suggest, the PGMs are truly limited in supply. They are truly needed. The supply and demand characteristics are transparent. I am fully invested throughout the complex including Sibanye Stillwater, the world’s largest PGM miner. SBSW is number one in platinum, rhodium and ruthenium and number 2 in the world in palladium and iridium. It has no debt and is led by a brilliant, caring, visionary and disciplined CEO, Neal Froneman.
So where does that leave me on Bitcoin, and why did I even include BTC in this discussion? Bitcoin is a remarkable financial innovation. It is the brand; has network effect; and is the face of crypto currency and the functionality that digital currency enables. While BTC has great utility, so too will the forthcoming flood of stable coins. BTC value is premised on the 21 million coin supply, and given what will be unlimited crypto currency issuance, I am not motivated to assign an intrinsic value. In fact I find it impossible to truly value what differentiates Bitcoin from stable coins since they both have equal utility. As a result trying to assign a value to the limited supply of Bitcoin for me, is an errand I am unable to perform.
It is true that I believe Bitcoin is opaque. It is dependent on the electric and communication grid and government regulation. And I find PGMs to be transparent and in fact, independent. Yes, I have that same view of gold. So my Mom’s few dollars? Platinum Group Metals. :-)
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