In today’s Exponential Investor:

  • The one precious metal you don’t want to own
  • Wearable wealth
  • To hold or to paper trade?

One reader, who shall remain nameless, wrote in recently to say “G’day”.

(NB For readers who have not been to Australia, this is the universal greeting in the Lucky Country. It’s a bit like “Aloha” in Hawaii or “Servus” in Austria – although you would not also use it to say goodbye to someone as you might in Honolulu or Vienna.)

Well, “G’day” to you, fine sir.

As a result of various changes, I am now able to access mail sent to [email protected] in real time. This is good news, because you are asking some interesting questions.  For instance:

Apart from copper, gold and silver, what other precious or semi-precious metals do I expect to perform well in the months years ahead?

So, what are the other precious metals?

Well, for starters, copper is not actually a precious metal. It is a base metal along with lead, nickel, tin aluminium and zinc. And the prospects for copper and other base metals are great subjects that we can usefully explore in more detail in the weeks ahead.

As for the other precious metals, well that’s tricky. There’s the investor definition of precious metals and the scientific definition of precious metals.

If you’re an investor, you’d say there are five precious metals: gold (Au), silver (Ag), platinum (Pt), palladium (Pd) and rhodium (Rh).

If you’re a chemist or metallurgist, there’s eight precious metals: gold and silver, plus the six platinum group elements (PGEs): platinum (Pt), palladium (Pd), iridium (Ir), osmium (Os) rhodium (Rh) and ruthenium (Ru).  

And they’re all clumped together on the periodic table…

Image 1

Source: sciencenotes.org

All the metals above are scarce, durable and useful. They are corrosion and tarnish resistant, less reactive to chemicals, are naturally occurring compounds, good conductors of electricity and can withstand extreme heat. They’re hard but malleable and have high melting and boiling points.

Importantly, the PGEs are chemically quite similar and generally found together in one resource deposit.

And because of their composition, they are used in a variety of chemical compounds.

This chemical versatility is exactly why we need them. All eight are scarce, durable and useful.

They have the defining qualities of what makes a precious metal.

All these traits are why the whole PGE group is considered precious metals by chemists, but not by the market.

Only gold, silver, platinum, palladium and rhodium are considered investment precious metals.

The reason? Some of them are just too scarce to have any sustainable investment value.

PGEs are among the rarest metals on Earth.

Platinum, palladium and rhodium are rarer than gold.

And iridium, osmium and ruthenium are evener rare than the other three.

Less than 12 tonnes of ruthenium are mined each year around the world. For iridium, it’s three tonnes. And for osmium, global annual production barely cracks 1,000 kilograms each year.

That’s in contrast to gold, where about 2,500 to 3,000 tonnes of the yellow metal are mined each year.

Don’t get me wrong, there’s been a handful of investors that have tried to make an investment market of iridium, osmium and ruthenium.

But these metals are so rare it’s virtually impossible for an investor to get their hands on them.

The shear scarcity of osmium, iridium and ruthenium make them bad investments as their prices are wildly unpredictable. To boot, all their uses are industrial… and even then, not in large amounts.

On the other hand, platinum, palladium and rhodium all have a wide variety of industrial applications. And their versatility in goods makes them highly desirable for manufacturers. Plus, they are rare enough to be economically mined but nowhere near as common as gold or silver.

Maybe don’t buy this rock…

I’ve made the case for gold and silver several times, so let’s ignore those ones today.

That leaves us with the investment case for platinum, palladium and rhodium.

I would consider rhodium a curiosity or a collector’s item instead of a genuine asset.

There’s too much working against an investor from the start to make a clear investment case for it. Rhodium is volatile, opaque pricing and too few investors want it.

Today it trades for US$14,350 per troy ounce, but was worth over US$30,000 per ounce one year ago.

The premiums – the cost of fabrication from turning the concentrate into a bullion product – on rhodium minted bars and coins are ridiculous. They can add an extra 20% or even 30% to the spot price of this metal if you want to own the physical thing.

The market for rhodium is difficult as almost all of it is gobbled up by industry, and there’s only one or two refiners in the world that will refine it into bullion products. Globally only a handful of bullion dealers sell it and the investor appetite for it is very thin.

By all means look at the rhodium market, but don’t touch it.

That leaves us with the more investable, and predictable, platinum and palladium…

Invest in it or wear it?

In the past couple of decades, the market for platinum and palladium has deepened giving investors more transparency.

The increasing size of the market – as well as advocacy groups like the World Platinum Investment Council – have seen the platinum and palladium market move from industrial buyers to include private speculators.

Furthermore, investors can now access both metals via ETFs, stocks, and owning physical bars in addition to the traditional options of platinum and palladium jewellery.

My take on this, is if you are going to own the physical version of either platinum or palladium, you may as well do it as jewellery rather than as a minted tablet or coin.

The reason? They are beautiful metals and should be enjoyed.

But more importantly, the premiums you will pay for a minted bar of either platinum or palladium can be quite high, and tax implications for both vary from country to country.

Yes, the mark-up on jewellery is much higher than the refining premium. But the spot price for both platinum and palladium is volatile and the average investor would struggle to catch these jumps up. Selling physical bars into a rising market would be difficult.

Rather than physical, you could look at the paper options, like an exchange-traded fund (ETF) such as iShares Physical Platinum ETC or the iShares Physical Palladium ETC.

The investment case on why you would invest in either of these two metals however, is completely different to why you might invest in monetary metals like gold or silver.

Both platinum and palladium are industrial metals. So unlike gold, they aren’t as sensitive to rate changes from central banks or inflation data. Rather, they react to things like manufacturing data or vehicle-making production.

As for the reasons why you should or shouldn’t invest in platinum or palladium, I’ll dive into that later in the week as I’m about to run out of digital ink space.

Make sure you tune in on Thursday. I’ll reveal the one thing you need to know before you invest in either of them.

Until next time,

Shae Russell
Co-editor, Exponential Investor