Editorial Feature

Platinum - History and Investment

The word platinum sometimes enjoys a cache higher even than gold, as platinum albums and platinum credit cards attest. However, widespread knowledge of the white metal stretches back only a few hundred years, versus thousands for gold. Despite being worked with some skill by South American Indians over 1,000 years ago, it was not until after the Spanish conquest of the New World during the fifteenth and sixteenth centuries that news reached Europe of a new white metal with unusual properties.

By the end of the 17th century, the Spanish Conquistadors had discovered alluvial deposits of platinum while they were panning for gold in the Choco region in what is today Colombia. They considered the metal a nuisance because it interfered with their gold mining activities. In fact, since platinum was considered of little value, it was soon being used by forgers to adulterate Spanish gold coins.

Despite its extreme rarity, platinum's extraordinary properties made it of interest to European scientists. Upon its introduction to Europe, platinum was noted as a substance that could not "melt by fire or by any of the Spanish arts." It was known to be even heavier than gold and to be virtually impossible to corrode with gases or chemicals. These properties piqued the interest of a Swedish assayer named Scheffer who, in 1751, recognized platinum as the seventh element known to exist up until that time. He was also the first to successfully melt platinum.

Early Industrial Use

During the rest of the eighteenth century, platinum's star rose quickly. The very qualities that had, for centuries, made platinum difficult to work, now made it attractive for industrial uses. For example, platinum was used to make durable laboratory instruments in Berlin in 1784. In 1780, it was being used in France to make crucibles for glass production, a use that, to this day, consumes tens of thousands of ounces of platinum each year.

1700’s

As new industrial uses for the metal were discovered, platinum's tarnishless beauty and strength also began to impress jewellers and goldsmiths. In 1788, Francisco Alonso of Spain crafted a platinum chalice, weighing nearly two kilograms, for Pope Pius VI. Other leading metal workers, such as Marc Janety, Royal Goldsmith to Louis XVI, and Pierre Chabaneu, of Spain, were also enchanted with platinum. Soon, platinum was being used to make expensive cutlery, watch-chains and coat buttons.

1800’s

Early in the 19th century, new refining techniques increased platinum's availability for use in a growing number of industries. As more platinum became available, it was soon being used in gun parts, sophisticated batteries and fuel cells, the production of caustic chemicals (the first platinum sulphuric acid boiler weighed over 400 ounces) and the purification of hydrogen.

One constant problem preventing the even more rapid spread of platinum use was its extremely limited supply. In fact, in 1820, Columbia, still the only major producer of platinum in the world, ceased exporting the metal due to the nation's independence from Spain. Luckily for the growing platinum industry, a new supplier was soon found: Russia.

In 1822, alluvial platinum was proved to be present in the gold fields of the Ural Mountains. Since there was little demand for platinum in Russia for jewellery, industrial or scientific use, and still only modest amounts were needed abroad, the Russian government decided to make platinum into a monetary metal by producing platinum roubles. Over the next 18 years, the Russian government minted almost 500,000 ounces of platinum and, perhaps more importantly, introduced to the world the notion that platinum was not just a commodity, but was also, like gold, a store of value.

Jewellery

While industry and bullion coinage were major consumers of platinum in the 19th century, platinum jewellery remained rare until high-temperature jewellers' torches were developed later. Once this development was made, jewellery makers were quick to take advantage of platinum. Before the first decade of this century, the whiteness of diamonds had long been highlighted by setting them in silver. However, silver's relative softness meant that these settings had to be relatively heavy -- taking away some of the brilliance of the stone. Thus, as jewellers became more adept at using "the other white metal," platinum quickly took over the role of the diamond setting of choice.

The Modern Commodity

The number and scope of platinum's industrial uses have skyrocketed during this century to include neurosurgical and dental apparatus, drugs for cancer treatment, computer and automotive equipment. Indeed, one of every five goods manufactured either contains or is produced using platinum. One of its most essential uses is in auto catalytic converters. Within autocatalysts, platinum converts harmful emissions into carbon dioxide and water. Nearly one third of newly mined platinum is used in this fashion. Due to its function in the automotive industry, it has been dubbed "the environmental metal."

While new uses for platinum are being discovered almost daily, its supply is extremely restricted. Remarkable difficulties exist in its mining and production, with between 5 and 6 million ounces of new platinum reaching the world market each year; that figure is less than 5% of gold production. It is estimated that all of the platinum ever mined would fill a room measuring less than twenty-five feet on a side. Refining the metal poses its own problems; platinum occurs naturally in combination with other metals, necessitating an intricate process of extraction that takes about six months.

Limited Sources

This problem is exacerbated by the limited sources of platinum production. The world's growing appetite for platinum is essentially satisfied by the mining activities in just two regions. The Bushveld Complex, which is just north of South Africa's capital, Pretoria, is one. The mines in this area produce more than two thirds of the platinum that reaches the markets each year. The other site is in the Noril'sk-Talnakh region in the extreme north of Siberia in Russia. It is estimated that at least one quarter of the world's supply is either currently mined here or is from above ground stocks that were accumulated over many years. Russia is the only nation with significant stocks of platinum and it is believed that these may be running out.

Platinum's relative scarcity in the face of newly discovered and ever-increasing uses makes for an attractive 21st century investment. Platinum's historical price performance and its unique fundamentals are attracting an increasing number of informed investors. Precious metals have long been recognized for their tendency to appreciate when other financial instruments, like stocks and bonds are declining. Investors, however, are not content with simply "securing" their assets against inflation and other economic dangers. They also demand the opportunity for capital appreciation. Platinum's unique fundamentals offer investors both: The ability to hedge against uncertainty and the potential for profit.

Platinum's supply/demand fundamentals are tight. In fact, according to some estimates, were platinum mining to cease today, above ground reserves would last about one year. In contrast, gold reserves would last nearly one quarter of a century. Platinum's supply is tight even during periods of relatively normal mining production. Enough platinum was supplied to world markets last year only after Russia exported considerable amounts of platinum from its shrinking above-ground reserves.

The Investment Vehicle

Although Russia introduced platinum coinage over 150 years ago, investors had to wait until the second half of the last century before they could easily invest in platinum.

Platinum Futures

In 1956, the New York Mercantile Exchange introduced platinum futures as a way to diversify from its exclusively agricultural offerings. While futures offered a standard and liquid outlet, the highly leveraged nature of futures trading meant that individual investors faced a high risk of losing a large share of their investment due to small changes in the price of the underlying commodity. As a consequence, most platinum futures contracts are today held by industrial hedgers or major speculators.

Platinum Bullion

In 1975, after the Arab Oil Embargo and collapse of the Bretton-Woods agreement sparked increases in precious metals prices, Tanaka Kikinzouku Kogyo KK, the leading bullion house in Japan, introduced platinum bars that were small enough for the individual investor to buy. With platinum close to $180 per ounce, Tanaka's five gram and ten gram bars could be bought by investors for well under $100. That platinum bullion investments were first introduced in Japan made perfect sense because platinum jewellery was already highly popular there.

With platinum's huge price changes during the late 1970's and early 1980's interest in platinum bullion investing spread to Europe and the United States. Two platinum fabricators, Johnson Matthey & Co. Ltd., and Engelhard Corporation began to produce one and ten ounce platinum bars. Soon thereafter, the variety of platinum bullion bars rose as JM, Engelhard and Tanaka expanded their lines and firms like Degussa jumped into the market.

Platinum Coins

In November of 1983, platinum investing entered a new era when, for the first time, a nation began to issue platinum legal tender coins that derived its value almost entirely from the platinum it contained: The Isle of Man, a British Crown Possession, issued a one ounce Noble. Legal tender bullion coins are viewed by many as the most secure way to own platinum. Most importantly, they are not subject to assay because their weight and purity are backed by the issuing nation. They are also portable, liquid and often quite beautiful.

The Isle of Man's highly successful Noble enticed other mints to issue their own platinum coins. During the second half of 1988, Australia (the Koala) and Canada (the Maple Leaf) introduced platinum legal tender bullion coins within three months of each other. Despite the proximity of the launches, both introductions were enormously successful, bringing the level of investment demand to new highs.

For nearly ten years, Australia's Koala and Canada's Maple Leaf were among the leading platinum coins in annual sales. In addition to these programs, the 1990s witnessed the release of dozens of limited edition platinum proof coins to satisfy numismatic demand. These products derive their value from both the price of the platinum they contain and from collector demand for the individual issues. China, for example, issued a coin in a number of different weights called the Panda. While the Panda is popular with collectors, its beautiful design has also made it the centre of many jewellery pieces. Another recent introduction was Russia's Ballerina proof coin. In fact, during the past decade, Russia (and the former USSR) released at least 18 different platinum legal tender coin designs. The Isle of Man has also been active in the platinum numismatic market. Besides its bullion coin, The Isle of Man has minted roughly three dozen unique platinum coin designs since 1979.

Enter the Eagle

In 1997, the United States Mint launched its first platinum bullion coin, The Platinum American Eagle. The launch of the Platinum Eagle brought a near doubling in investment demand from 1996 levels. The Platinum Eagle quickly became the most popular platinum coin in the world, with the bullion fractionals selling at premiums to their original cost owing to the relative scarcity and popularity of the coins.

The Proof Platinum American Eagles experienced such heavy demand when first released that many denominations sold out completely. Being "first" in many categories, collectors have been willing to pay premiums on the secondary market for the Platinum American Eagle proofs. The Vistas of Liberty series, started in 1998, features on the Platinum Eagles five different regions of the United States, with the program running through the year 2005. No coins like these can ever be struck again - and collectors have responded accordingly.

So after 100 years of no investment options, the platinum investor now can choose between legal tender coins, bullion bars, exchange traded futures and options or even various numismatic coin products. However, while the development of platinum as an industrial, jewellery and investment product has been an interesting one, the white metal's most exciting advances may lie ahead. As trade barriers have fallen and command economies have been privatised, we have seen the acceleration of economic growth throughout the world. What makes this so exciting for platinum investors is that, in contrast with gold and silver, as countries become wealthier, they spend an increasing share of their wealth on platinum. This phenomenon is most clearly seen in the recent rapid spread of catalytic converter legislation to many emerging markets that, heretofore, consumed only insignificant amounts of platinum.

From being the metal that polluted the gold of the Conquistadors to its recognition as being the rarest or even the most precious of the precious metals, platinum's odyssey has given it the investment performance of a precious metals hedge with the potential of the scarcest of industrial commodities.

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Comments

  1. Sexy Coconuts Sexy Coconuts Australia says:

    yes. why isnt platinum a food????

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