It makes sense for me to think long and hard before acting against one of super investor Warren Buffett’s teachings.
In a TV interview in 2012, Buffett ridiculed the idea of investing in precious metals.
“If you buy an ounce of gold today and you hold it 100 years, you can go to it every day and you can coo to it and you can caress it and you can fondle it.”
“And 100 years from now, you’ll have one ounce of gold, and it won’t have done anything for you in between.”
Yet despite agreeing with Buffett’s observation, I bought shares in WisdomTree Physical Platinum (LSE:PHPT).
The platinum bull thesis
It’s no surprise that platinum is lumped together with gold.
After all, around 20% of annual demand for platinum comes from speculators who just “caress and fondle” it, while another 24% comes from jewellery demand.
While platinum was once heavily used in catalytic converters to reduce noxious emissions from cars, automakers largely substituted it for palladium in the 2000s.
Platinum is now in the historically strange position of costing less per ounce than gold and palladium.
So, why would anyone want to own platinum?
Quite simply, I believe platinum belongs – but rarely appears – on the list of energy transition metals.
In other words, I see platinum right now as being akin to lithium in 2016 – since which time, the price of battery-grade lithium carbonate has increased by 700%.
That’s because platinum is a key metal in hydrogen power, commonly acting as a catalyst in hydrogen fuel cells.
According to the World Platinum Investment Council, “current EU and China green hydrogen generation capacity targets alone would require, cumulatively, between 300koz and 600koz of platinum by 2030”.
Now, consider that all the platinum ever produced would fill an Olympic-sized swimming pool only up to your ankles; gold, by comparison, would fill such a pool to the brim three times over.
And platinum already has a diversity of uses – from autocatalysis (where it is still used to some extent alongside palladium); in medicine to make pacemakers, cochlear implants and cancer drugs; in jewellery; as an investment vehicle; and even in hard disks for laptops and servers supporting cloud storage.
Meanwhile, this marvellous metal’s supply is concentrated in unstable jurisdictions, with 12% coming from Russia and 72% from South Africa – where industrial action, power cuts and underinvestment pose headwinds to production.
Buffett on board?
Warren Buffett did once invest in precious metals. In 1997, he had a flutter on silver, buying nearly 3,500 tons.
By 2006 he had sold it, saying wistfully: “I thought that silver would get tight at some point, and I was early in that conclusion, and I was early in selling.”
Buying commodities, especially metals, puts investors at the mercy of a myriad of industrial and macroeconomic factors.
But my hope is, if I hold onto my platinum long enough, I might see demand for the metal outpace supply – giving me the chance to sell at a healthy profit.