Costco Adds Platinum Bars to Precious Metal Offerings Amid Robust Retail Interest

Following the popularity of gold and silver, Costco recently added platinum bars to its lineup of precious metal offerings. Although platinum has not performed as strongly as gold and silver this year, its fundamentals remain solid.

Platinum is a relatively newer commodity in the investment landscape. "Platinum is a 'newer kid on the block'," said Edward Sterck, director of research at the World Platinum Investment Council. It was only properly identified in the 19th century because it is always found in ores alongside other metals and has a very high melting point. Additionally, platinum is about 30 times rarer than gold, which contributes to investor unfamiliarity. The platinum investment market remains a fraction of the size of those for gold and silver, noted Robert Minter, director of investment strategy at Abrdn, which manages the largest platinum exchange-traded fund (ETF) on the market.

Despite this, retail interest in platinum has been strong recently. In the first half of 2024, investment accounted for around 579,000 troy ounces of platinum, or roughly 13% of total demand, mostly through ETFs, according to Metals Focus. However, platinum prices have declined by about 1.5% year to date, while gold and silver have increased by 29% and 32%, respectively.

Part of the weakness in platinum pricing could be attributed to its intermediate status as a green metal. A significant portion of platinum demand, between 30% to 44%, comes from the automotive industry, where it is used in catalytic converters to reduce tailpipe emissions. Over the past few years, expectations that electric vehicles (EVs), which do not require platinum, would dominate internal combustion engine cars have dampened enthusiasm for the metal.

Furthermore, several automakers built up platinum inventories after the Covid pandemic, especially in early 2022 as a hedge against supply disruptions following Russia's invasion of Ukraine. Russia is the second-largest platinum producer after South Africa.

Nevertheless, demand for platinum from the automotive industry has been strong, growing 17% from 2019 to 2023, according to data from Metals Focus. Demand has been resilient for conventional cars and is growing quickly for hybrid vehicles, which use more platinum-group metals than regular cars. Hybrid vehicles, which start cold more frequently, often require more platinum to effectively reduce emissions.

Hybrid vehicle sales in the U.S. outpaced EV sales in 2023 and are on track to do so again in 2024, according to Edmunds. Automakers are scaling back investment in EVs and increasing production of hybrid cars. Additionally, the automotive industry has shifted from using relatively more expensive palladium to platinum in gasoline cars, further supporting platinum demand.

Platinum has also found demand in other industrial sectors, including chemicals, petroleum, medical, and glass, which have shown resilience in recent years. Its role as a catalyst in hydrogen production is also notable, though not yet substantial enough to drive significant demand.

On the supply side, platinum production is not likely to see a significant increase soon. Since platinum is typically mined alongside other metals, weak palladium and rhodium prices have limited platinum mining. Power outages in South Africa, which produces about 70% of the world's platinum supply, have also negatively impacted output.

Moreover, recycled platinum supply from scrapped cars has been declining every year since 2021. Cars are staying on the road longer as they become more durable, and rising costs of new vehicles have encouraged motorists to hold onto their cars. The average age of cars in the U.S. has reached a record high of 12.6 years in 2024, according to S&P Global Mobility.

For now, aboveground inventories can cover the deficit, though such stocks declined by 15% in 2023 and are expected to fall by another 25% in 2024, according to Metals Focus. J.P. Morgan projects platinum prices could reach $1,200 per troy ounce by late 2025, up from the current price of around $994 per ounce. Citi expects prices to rise to $1,100 per ounce within the next six to twelve months, with the market likely to remain in deficit over the next two years. Another potential catalyst could be the Federal Reserve's interest rate cuts, which may spur car purchases.

Robert Minter of Abrdn cautioned that physical platinum bars, like those available at Costco, can be more challenging to sell than ETFs. "Investors can easily lose 10% of the metal's value by selling to a dealer because of the risk the dealer takes on," Minter said. He advised that while platinum may be a solid addition to an investment portfolio, buying physical bars may not be the most cost-effective option.

Platinum appears to be a promising commodity to have in your investment basket, but in this rare case, Costco may not offer the best deal in town.