The r0ach report vol 6: Why I don't buy platinum

(wikipedia image)

This is kind of a narrow topic but just something I wanted to get out there. A guy replied on one of my previous posts that he thought platinum looked like a good buy right now (it was around $910 at the time). I said it did appear to be a good entry point for platinum because the market was pretty bottomed out, but I didn't think it was as good of a purchase as silver or gold for taking actual physical delivery.

Since that point, gold is up around 5.5%, silver is up around 7.6% , and platinum is up around 7.8%, so platinum has gained a negligible amount above my current favorite, silver. This might lead some people to believe platinum is as good or better than the two main monetary metals, but here is why I do not see that as the case.

Investing isn't really about what you think is the best strategy yourself, it's about figuring out what you think everyone else is going to do - you don't operate in a monetary vacuum. In terms of monetary metals, the active, and not yet but likely to be active interest, is orders of magnitude higher in both gold and silver. Gold even has a pretty sizable lead over silver in this regard, but not anywhere near the difference in gold and silver to platinum.

This is sometimes referred to as a game theory "Schelling point":

https://en.wikipedia.org/wiki/Focal_point_(game_theory)

In other words, when people turn on their TV and see the equivalent of a financial atomic bomb go off, one of the first ideas that's going to go through their head to try and secure wealth is going to be gold; while many, but not as many as for gold, will also see silver in similar light, and platinum will generally not be on the radar of anyone at all unless a war breaks out.

This dynamic also has the side effect of making it so gold usually performs the best in a deflationary environment, and silver performs great in comparison to say normal assets like real estate, but not quite as good as gold in deflation. In other words, if the value of real estate drops by 80% and gold goes down 20% and silver goes down 30%, your buying power has still increased a lot with both of them. Platinum on the other hand will be completely ignored by most and likely deflate almost as bad as everything else.

I give you exhibit A, the Rhodium chart:

(Sharelynx chart w/ my annotation)

Now, Rhodium was on a pretty big pump at the time, so some retrace is obviously warranted, but when the 2008 deflationary event occurred, the wheels completely flew off this thing in the most comical crash ever seen. Rhodium is a more obscure metal than platinum, so platinum likely wouldn't be this bad, but you get the point. Platinum is just not as likely to perform as well as silver and gold in a currency crisis when real interest moves from low to huge all at once.

My description above also made it sound like gold is a better option to take. The investor dynamics at play would make you believe that after reading this, but most analysts such as myself believe silver has seen far more downside manipulation than gold has, literally for hundreds of years, so they aren't taking a trajectory from the same starting point.

It is honestly a ridiculously complex set of variables involved, but the most likely scenario is both metals, along with every other asset on earth, see an initial deflationary event when you have a liquidity crisis in the monetary system. Gold would probably hold up better than silver during this initial wave, then silver would likely demolish gold in gains afterwards.

The only problem is that as seen in places like India, the government likes to invalidate your cash at random, preventing you from buying any dip, so you probably have to buy sooner. That and the fact that banks might just confiscate your cash in a bail-in, or we might completely skip deflation and just go straight to currency devaluation or mega-inflation.