What Makes Platinum and Palladium Precious Metals?

Hello and welcome back to Breaking the Dollar. As always, I'm your host, Everett Millman, and this week's episode, we'll be discussing the Forgotten Precious Metals. Now you may have heard something about platinum and palladium, perhaps in terms of jewelry, or maybe you did see the price scrolling across the screen when someone was already talking about gold and silver. But by and large, there's not a lot of good information out there in the public about these two metals. They are classified as precious metals like gold and silver, so when you look at the periodic table of elements, all four of them, gold, silver, platinum, and palladium, they make a little square right in the center of the chart. And accordingly, they have a lot of properties in common. So that means not only their luster, the fact that they're shiny in the light, they also have similar chemical reactions to other chemicals, and a few other things that make them somewhat similar to gold and silver.

And so probably first and foremost is what do these metals look like? They're both white metals, meaning they basically resemble silver. For someone who doesn't work in the mining industry or doesn't handle these metals all the time, it would be pretty difficult to tell the difference between either platinum or palladium and silver. Essentially, they have the same color, perhaps a little bit more dull than pure silver, but that's even where platinum's name comes from. Its original name in Spanish, platina, just means "little silver."

Now something interesting to keep in mind about both platinum and palladium is that they are far more rare in the Earth's crust than gold is. That means these metals are found in lower concentrations when you're digging for them in the ground, and also that the available supply of them is just far, far smaller than for gold and certainly for silver. There are also only a few specific places on the planet where you will see mining operations to extract platinum and palladium, and that just kind of reinforces the idea of how rare they are. Almost all of the world's palladium comes either from Russia or South Africa. And you do have some palladium mining that goes on in North America and the United States and in Canada, but it pales in comparison to how much South Africa and Russia produce.

And in terms of mining, something that is sort of similar to what I've mentioned about silver before on the show is that there are very few primary palladium mines. This means that by and large, palladium is mined because of some other mining operation going on. And in this case, that is nickel. So where companies are already mining large amounts of nickel, they do happen to find palladium in the same ore body, in the same rock. And so it is recovered sort of as a secondary byproduct. The same is somewhat true of platinum, but in South Africa, there are some primary platinum mines. Unfortunately, there's been quite a bit of labor strife at those mining operations. So we have seen some supply concerns both for platinum and palladium this year.

So when you take a look at the current prices at the time of recording this, platinum is just above $900 an ounce, which is down kind of from its historical levels, but it is up around 10% this year. And palladium is just on a whole another level in the past couple of years, palladium prices have really skyrocketed. And in historical terms, palladium was usually about half the price of platinum. And now that relationship has been completely flipped. The ratio is that palladium is more than twice the price of platinum. So there's been quite a flip flop. Palladium has continued to hit all-time high prices throughout 2019. Right now it's above $1,850 an ounce. So it's even more expensive than gold. And by and large, that has to do with those supply concerns I mentioned. But also there's been rising demand from the automobile sector.

So in a moment, I will talk about some of the other uses of these metals, but mainly they are used in heavy industries. And the number one industry that uses platinum and palladium is the auto sector. That's because each of these metals are key components in the catalytic converter in your car. And this is basically the device that helps catalyze some of the pollution that comes out of your exhaust and converts it into less harmful materials. In diesel engines, they use a bit more platinum, but generally both metals are used for your catalytic converter.

And what's interesting from a demand perspective is that as pollution emission standards have gotten more stringent and there are laws in effect that force car companies to make the exhaust emissions cleaner, they have to use more of these metals. In other industries, you'll also find that platinum and palladium will pop up in a lot of high-end electronic devices. So in laptops and smartphones, certain components could not be made without at least a small amount of platinum and palladium. So they are extremely useful metals from a technology perspective. One other interesting use that's been coming up more and more for each of these metals is in fuel cells. So for electric vehicles, rather than using the existing lithium-based battery, they will use either platinum or palladium as a catalyst to generate power for the electric vehicle. So that's another interesting avenue where they're becoming more and more useful.

Now you do occasionally see platinum and to a lesser extent palladium used in certain types of jewelry, necklaces and the ornaments that hang on your chain, or more commonly for wedding bands, for wedding rings, a lot of times will be made out of platinum because like gold, platinum and palladium are very good at resisting corrosion and tarnishing. So that's kind of ideal for a wedding band that is supposed to symbolize something that lasts forever because these metals will largely look the same forever. Instead of jewelry, the other use where we do see platinum and palladium and that relates directly to what we do at Gainesville Coins and gold and silver is there is a small sliver of investment demand for these metals. It's much, much smaller in comparison to silver and gold, but it has steadily been growing over the years. So not only do you see bullion bars that are made out of platinum and very rarely you will see one of those made out of palladium, but government mints have been minting their own platinum coins and very recently have even broken into minting some palladium coins that are specifically tailored to investors.

So in the United States, since 1997, each year the government has made the Platinum Eagle, which is a platinum investment coin. The Royal Canadian Mint in Canada has for a while been making Platinum Maple Leaf coins, but just in the past year or two, we have finally seen a Palladium Maple Leaf and a palladium bullion coin from the United States Mint. There was a little bit of hype surrounding these products, but they are certainly not nearly as high of demand as the silver coins and gold coins that investors are more used to. Still, it is kind of exciting to see that there is a small but growing investment interest in these metals and when you look at how much the palladium price has gone up in the past year, like I pointed out before, it is kind of hard to ignore. So it makes sense.

Beyond that, I do want to quickly circle back to this idea that platinum and palladium are important components to some of our cutting edge technologies because it is not just electronics or electric vehicles. In a lot of medical situations and a lot of lab tests, platinum and palladium are used as catalysts because their properties give them very specific reactions to certain chemicals. As a catalyst, they can start certain chemical reactions. That is somewhat similar to gold, but it does go back to having that property of non-corrosion and non-tarnishing. The fact that these are durable metals that aren't going to break down in some of these intense lab situations. So when it comes to some new discoveries, especially in the field of medicine with certain cancer treatments and other medicines, platinum and palladium are at that forefront and we still don't know all of the applications that they will ultimately be able to be used for. So it is pretty exciting stuff. That pretty much wraps up our discussion of platinum and palladium for this week.

So I'd like to move on to our question from the listeners. This one asks, why don't you sell jewelry? Oh, there it goes, from Jen in Edinburgh. That's an interesting question because I guess because jewelry is often made of gold and silver, you assume that any company that sells gold and silver would also sell jewelry. The difference is that it's not really the same type of product. Unless you're in China or India, you're never going to see 24 carat gold jewelry. You're never going to see jewelry that pure because it's not very practical to wear. Most jewelry is 14 carat or below. What that means is that it is less pure than investment-grade gold bullion or silver bullion. And that's really the dividing line.

When you buy gold and silver for investment purposes, really you just want the pure metal. It helps if it looks nice or has a nice design or certainly if it is a government issued legal tender coin. But by and large, jewelry has such a higher markup price because of partly the labor costs that go into fashioning it and the fact that because it is a lower purity, the actual value of the metal in jewelry is not as close to the selling price as it is for the type of gold and silver coins and bars that we sell at Gainesville Coins. So that's the main reason, is that jewelry is really a completely different product type than investment-grade gold. But that is a good question because it's something that I do seem to see coming up a lot.

That's it for today. Appreciate everybody out there listening. Thank you so much for tuning in. Be sure to check out our episode next week where I will be talking about the trend of de-dollarization. Should be interesting.