Thursday, May 26, 2011

Platinum & Palladium - Money or Catalyst

I would classify platinum and palladium as highly industrial precious metals, which are susceptible to demand destruction should world economies grind to a halt. Though they have all the elements of a precious metal, they don't have a significant money vector, meaning, it is unlikely that central banks will allow palladium or platinum to be used as collateral. With that said, ISO 4217 (a standard delineating currency codes) includes gold, silver, platinum, and palladium as currencies. Though this may be the case for the international standard, there are fundamental issues with platinum and palladium becoming official money.
  1. Platinum and Palladium are only located in a few places across the globe, which would effectively concentrate wealth to those areas (North America, Russia, South Africa) should they be monetized. This of course would be unacceptable to the rest of the world. In contrast, gold and silver are widely disbursed across the world.
  2. Both platinum and palladium are extremely rare. The ranking of abundance in Earth's crust from most abundant to least abundant goes something like this: silver (67th), gold (74th), platinum (70th), palladium (72nd). Compare this to the prices: silver ($37), gold ($1520), platinum ($1770), and palladium ($750).
  3. Historically, there is little precedent for palladium and platinum being used as money. In fact, most people probably haven't even heard of palladium.
Overall, it's unlikely that platinum and palladium will become money in the same way that gold and silver will. Something to note, palladium is more rare than platinum and has similar uses, but it is less than half the price of platinum. If you're interested in learning why...take a look: The Case for Palladium - Stillwater Mining Company, Montana (pdf).

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