CPM Group’s Gold and PGMs Market Update Video
Third Quarter, 2019
The CPM Group is dedicated to ensuring that precious metals investors are up to date with current information regarding the metals market. In this video, sponsored by Monex, you will see more information regarding gold and the platinum group metals, or PGMs. After viewing this video, please give one of our knowledgeable Account Representatives a call at 1-800-444-8317 to discuss more about factors affecting the market and why now may be a great time to add precious metals to your portfolio.
Jeffrey Christian: Good Morning and welcome to CPM Group's third quarter gold and Platinum Group Metals review...market review. This morning, we would like to thank our sponsor, Monex Precious Metals. Monex has been a trusted name in gold and bullion trading the past 50 years and CPM Group has been proud to work with them for much of that time, the 33 years that we've been in business. Please check them out at www.monex.com. Thank you.
We have a lot to cover. Today, the gold, platinum, palladium, and rhodium prices have risen sharply in the last month or so. We'll talk about what we saw driving those prices and where we think the prices are going to be going over the next six months and then on a longer term. We're going to be talking a lot about the fundamentals. Our hope is to talk about gold, palladium, platinum, rhodium and a little bit about minor issues there and Rohit and I will be passing the microphone back and forth. While we're doing that, I will supposedly be in command of the slides. So, if the slides get out of sync with what Rohit's saying, I apologize in advance. With that said, let's jump into it.
Just bear with me one second. Okay. So, let's jump in to this, if I can. First thing I want to talk about is gold. The gold price as you can see here has jumped up about $100 dollars since the middle of June. It's important to understand why the prices jumped up and I'll get back to that in a couple of minutes. I think that we had seen prior to that a lot of pessimism and navel gazing on the part of gold investors saying, "Why wasn't gold prices... why weren't gold prices rising more sharply?" You can see from this chart that gold prices really have been relatively flat over the last six years. They did fall from 2013 into 2016, but they came back. Since 2016, with a couple exceptions, they basically have been trading between $1,180 and $1,200 on the low side and about $1,380 on the high side. Our view has been that gold still is important to investors, but it's only important to investors when the economic, political, and financial system tells them that they should be concerned about the economic, financial, and political stability and that even with all of the problems that we've seen over the last three years or so, even going back over the last 12 years to the great recession and global financial crisis, even with all those issues, investors have seen opportunities in the stock market and the bond market and in currency markets that have distracted their dollars away from gold and silver and commodities in general. Often times, when we see the gold price spike up $100, as we have in the last three or four weeks, you see gold bulls say this is the start of it. We had seen this even before the gold price rose. There is this view... if gold can take out $1,360, it's going to $1,500, $1,600, $2,000. Our view was that if the price got over $1,360, it would go to $1,380 and maybe ultimately over $1,400, but that the rise in gold prices will be much more measured and tempered, because the economic and political environment while bad, still is not so bad as to drive investors wildly into gold the way it did from 2002 to 2011. So, we're at a point now where we see that the gold price has ratcheted upward. Our expectation is that is makes a base around current levels, comes off a little bit yet in July, especially in August and then starts moving more strongly upward beyond August.
One of the things that we noticed and one of the reasons we have that view is that if you look at the recent rally, it was occurring in the futures market, options markets, forwards in London, ETFs, and coin demand did not rise. In fact, coin demand from mints, actually fell. So, what we saw was that in late June, for reasons that we'll talk about in a second, you saw a lot of shorter term investors moving into futures and options, moving into the OTC trading in London. This chart here only goes through April. The London banks have only started reporting total transaction volumes in late November of last year. You can see here, that you had about 150 million ounces a week trading in the London market. In the last two weeks of June, you saw that spike up to about 227... 226 million ounces per week. So, you saw significant increase for two weeks and then last week it came back down to about 165 million ounces. So, you've had a lot of short term investors move into futures, options, forwards, and ETFs. Meanwhile, in the gold prime market and in the physical product market, what dealers have told us around the world, from China to India, to Europe to North America, is that a lot of longer term investors who buy coins and small bars actually took the opportunity to sell coins. So, you had a situation where you can see the premiums on the eagles plunge. Premiums on the buffalo also fell, not as sharply, the eagle is really the major market that a lot of people had. What you saw were investors selling back their coins, taking advantage of that $100 increase. The longer term investors were not convinced that this was the beginning of a move to $1,500, $1,600, or $2,000. They were taking an opportunity to get out of the market. That leads to the question of what drove prices higher in late June? If you studied the gold market, silver market commodities, currencies, equities, and bonds during that time, it's very clear that what was really driving gold prices higher and the dollar higher at that time was that the Fed was signaling much more accommodative policies and the market had this irrational exuberance. They were very exuberant in interpreting the Fed's comments and there was a great expectation that the Fed would imminently reduce interest rates in June or if not in June, in July and some of that exuberance continued in the financial market. So, what you really saw driving gold prices higher, what you really saw driving this short term investors into the gold market was the Fed. It was not concerns over oil supplies due to the tanker attack in the Gulf of Oman and the U.S. accusations that Iran had made that. If you go back and you look at that, oil prices did not rise on those incidents. So, neither did oil prices rise on those incidents, gold prices were rising, and gold prices were not responding to political risks in the oil market or the Persian Gulf, they were responding to the Fed's signals.
Now, our view of the economy and the political environment is that, as I said, things are bad, but they're not that bad yet. We do think that things are not as bad as a lot of people say. Our expectation is we are moving toward a recession, but that recession could be one or two or even three years away from now. There's a lot of bad signals in the economy, but there are also a lot of positive signals now. So, you have auto sales weak in China, off 20% or so, you have auto sales weak in the United States, the second largest market, off about 1.6%, but you have steel rising 20% in China and 6% in the United States. So, you still have pockets of strength and you still have a lot of things that are going on that are positive. Our view is that the Fed is right to be concerned about the risks of a recession, but the Fed is also right to be very cautious in being too easy too soon. So, the Fed is taking a wait and see approach. The Fed has signaled that it is ready to move should it see that the trade wars and other factors have a negative impact on a 10 year old economic recovery in the United States and global trade, but the Fed also is being very cautious to wait to see, because it's looking at very strong economic factors in the labor market and other places and demand. Competing asset markets: stocks, bonds, currencies, and real estate, meanwhile, are actually doing pretty well in the United States and North America. There are pockets of weaknesses. For example, Chinese real estate market, but you still see that competing asset markets are attracting dollars away from precious metals and commodities and safe haven investments like gold and silver to some extent. The financial market's stability has decreased. We are seeing greater risks, but we are also seeing pockets of strength. JP Morgan's earnings just announced last night our case in point. Political, social, economic, monetary, military stability, all these factors are causing investors to say, "I think the time will come when the economic environment will have...will see negative consequences, but it's not there yet. In the meantime, stock prices are moving higher, bonds are doing well, currencies are doing well...the dollar is doing well. So, I'm not ready to run back into gold as a long-term investment." Inflation is not a problem. Deflation is probably still a bigger risk in the long-term than inflation. Then the gold market trends are relatively supportive of gold prices. The economic realities that we're facing is that the world's not collapsing, nor is the U.S. economy, China's economy, the European economy. There are signs of strength and signs of weakness, as I said. I think a lot of people who are looking at the yield curve and saying that it's reflecting an imminent recession, may be misreading what it is. You have an inverted curve on, which sharp rates being higher than long rates, and we think that that possibly reflects changes in monetary policy, rather than recessionary conditions emerging, because if you look at the long rates, from say 3 years to 10 years, you have a positive curve still, which suggests that you should be cautious about the bearish outlook for the U.S. economy at this point. So, that's our view on the yield curve. Deficits and deficit...and sovereign debt...will trigger a collapse of the financial system, that's been a tenet of gold bugs for years. As I put down here, I actually did have someone say, "I've been wrong for 40 years, expecting the deficits to be unsustainable. Why would I change my opinion now?" When I started in this business in 1978, 1979, Jimmy Carter was President. We had a $58 billion deficit in the United States government. We had less than a trillion dollars in debt and Ronald Regan ran on a platform that he would balance the budget, because $58 billion deficit was unsustainable. In fact, he created a $325 billion deficit and he took the debt up several billion dollars over the 8 years of his campaign... of his administration. The reality is, that since the late 1970's, you have had any number of people buying gold, because they look at growing debt and deficit on the part of the United States and other governments and they say, "This is not sustainable. The global financial system is going to collapse and for 40 years they've been wrong." At some point, this debt may be a problem, but we don't know when it's going to be and I think there's a fear of large numbers that is involved here. One of the things that you see, to quote my good friend Dick Chaney is, "That deficits don't matter." That's what he said when he was Vice President. The reality is that for a variety of reasons the debt and deficit has grown enormously. The United States now is over $20 trillion of debt and has a $1.4 trillion dollar deficit, and that is problematic, but it may not lead to the collapse of the global financial system. It probably will lead to panics like we saw in 2008 and 2009, but those panics will probably be papered over, and the dollar will collapse, that's another one. In fact, the dollar has strengthened. If you look at the continued unwinding of the Fed balance sheet and if you look at the reserves held at commercial banks, which is devolving down, what you're actually seeing is tightness in the dollar market, which is applying upward pressure on the dollar. For the dollar to collapse additionally, the euro, the pound, and the yen would need to soar in very hyper-inflationary ways for those economies and you'd have to have investors saying, "I think that Europe, England, and Japan are better places to invest than in the United States." With all due respect, I'm not saying that the United States is a better place to invest in than those places, but what I'm saying is that international investors feel that the United States offers great advantages over other jurisdictions as a target for investment locations. So, you've seen the dollar hold up well. You've seen the dollar supplies actually be tightened by a reduction in the reserves held by commercial banks and the Fed balance sheet reduction and you're seeing the dollar hold up. So, while there are reasons to be concerned about the world economy and while there are reasons to say I want a greater portion of my wealth denominated in gold and silver and precious metals, it's not there yet.
This is our way of graphically portraying it. The size of the bubbles are the impact that these things could have on driving investment demand for gold higher and gold prices higher. The probability is on the vertical scale and the impact that they would have on gold prices is on the horizontal scale. We've seen these bubbles get larger over the last 10 years. We've seen them move further to the right to have a higher likely impact, but they have not moved upward from moderate to high probabilities. In fact, some of them have come down over the last several years. So, you have a lot of risks building up in the global economy, the global financial markets, and the risks are becoming more worrisome, but they are... the probability of them occurring in the next 6 months or 12 months has actually gone down a little bit over the last couple years and that's the environment in which investors have backed away from gold.
Investors have bought less gold last year than they did in any year prior to 2001. Long-term investors actually have been turned off by gold's performance, based on what they had... perhaps unrealistic expectations of where gold prices would rise. As investors have come down, have bought less gold and in fact some of them were selling, central banks took opportunities of the $200 decline in gold prices, from $1,380 at the beginning of 2018 to a low of $1,180 in August of 2018 and relatively modest prices until two weeks ago... four weeks ago. Central banks are bargain hunters, they're far more price sensitive than investors, and when investors were keeping the price over $1,380, central banks were buying less gold. When the gold price fell, because investors were backing away from buying, what you saw was that investors... central banks actually increased their amount of gold that they were buying. They do want to buy gold. They do want to add gold to their balance sheet, to their monetary reserve base, but they do not want to pay higher prices. That's very important to stress, because one of the things that you've seen is gold bulls taking heart with the fact that as investors bought less gold last year than they had in any year since 2001, central banks bought a lot more gold than they had since 2009. It wasn't a record level as some people said, but it was a very high level. I'll show you some charts in a second and when investors come back, not if investors come back, when investors come back as buyers, they will drive the price higher. Central banks will continue to buy, but they will buy less gold at higher prices.
I think another factor that is misunderstood in the gold market is the gold market is adequately supplied. Yes, you have billions of ounces of gold held by central banks and private investors around the world in refined form, coins and bars, around the world, but that's not necessarily readily available at current prices. Investors tend to buy gold. They rarely are net sellers of gold, but there is a lot of gold out there, and what we saw over the last two to four weeks is some investors are getting very tired of holding gold waiting for $2,000 goal. The world's not running out of gold or mineable gold. There have been a lot of miscalculations as to what is really going on in exploration expenditures and if you look at the exploration numbers that everybody uses in the industry, they're not adjusted for inflation, they're not adjusted for changes in the surveys--the additions and reductions and subtractions and additions back of companies in the data that's gathered, and they're also not adjusted for the shift away from actual field research and exploration to computer generated exploration and that's important because the computer generated exploration is predicated on where gold was found in the past-- let's look for geologic settings similar to where gold was discovered in the past. But, if you look at the last 150 years of gold discoveries, every major gold field from South Africa, to Australia, to China, to the United States was a geologic anomaly. Gold, generally speaking, is not discovered in a geologic setting similar to where it was discovered in the past and if you're sitting at a computer looking at where gold was discovered in the past and then you go look for similar geologic settings to see if there's gold there, you're missing out on the opportunities that have made fortunes for the last 150 years in gold exploration companies and the investors in them, because gold tends to be discovered in places where you wouldn't think to discover gold. So, those are some of the economic realities.
Very quickly, as I said, you can see here investment demand fell very sharply in 2018. It got down to about 12...13 million ounces, that was the lowest level since 2001, but you have to take that 2001 figure into context and the fact that it's the lowest level. People will say the economic recession in 2008 was the worst recession since the Great Depression. It's true, but if you look at the economic conditions in the Great Recession, they were far better than the Great Depression. We had 10%, 11% unemployment in the United States during the Great Recession. We had 30-40% unemployment during the Depression. Similarly, if you look at gold, yes, it was the lowest level since 2001 it was 12...13 million ounces, but in 2001 it was 2 million ounces. So, investors were still buying six times as much gold as they did back then. They just weren't buying the 20, 30, 40, 45 million ounces on a net basis that they have bought from 2003 to 2012, 2013. We have investment demand rising this year, but relatively modestly. Probably not enough to drive the price sharply higher this year, but the trend probably is toward getting back over that 20 million ounce per year net threshold, at some point over the next few years as the economic environment warrants it, and when that happens we will expect the price to rise.
As I said, central banks took the opportunity of low prices last year to stock up on gold and they bought more than 16 million ounces of gold. You can see that that is similar to levels that they bought 5 years ago. It's not necessarily a record level and it's actually quite low compared to what they were buying in the 50's when they were using gold for international trade sums. The 50's are ancient history and the gold market then was a fixed price at $35 an ounce and gold used to settle international trade balances among major industrialized nations. That's all behind us. If you look at modern markets, which is really since 1968, you can see that we've gone into this period of net central bank purchases of gold and you can see the price sensitivity there. When the price is relatively low, they're buying more-- 10 million ounces, 15 million ounces, 16, 17 million ounces, and when the prices a little bit higher they pull back. Central banks want gold, they see it as a small, but critical part of their monetary reserves, and they're extremely price sensitive and will continue to be price sensitive, except for a few notable countries that have sanctions against them and the United States right now, have net trade inflows, which are almost all in U.S. dollars or euros. So, they're constantly sterilizing their dollar and euro inflows and some of that...some of those dollars are being used to buy gold. This is the chart that basically shows that sensitivity of central bank gold buying levels to gold price change and again you can see as the price fell they bought more gold in 2013, 2014. Then, when the price started to rise in 2015, 2016, they pulled back. As the price fell in 2018, they bought again. Let's see if I can get back there. Sorry.
This is our medium-term gold price outlook. Our expectation is that gold price will rise. These are quarterly average bases. We think that the gold price will average around $1,400 in the latter part of this year. We're above that right now. That suggests that we do think the price of gold will decline in August, which I said at the outset we do, but we do think that the gold price moves steadily higher over the next year or two, and then at some point these economic conditions becomes much more problematic, and political conditions perhaps become more problematic, and investors start buying greater amounts of gold, over 20 million ounces, and the gold price rises. My last slide on gold, if I can get to it, relates to gold equities. Just bear with me. That's basically, that we've seen a lot of weakness in gold investment demand in gold mining companies and part of that is because the gold mining companies, by in large, haven't really given investors good returns. If you look at the S&P versus the FTSE Gold Mines Index, gold mining really outpaced the S&P from 2001 into 2011, 2012, but since that time it really hasn't done that well for investors. As I say at the bottom, Peter Munk said, "I was successful in developing a good profitable gold mining company, because I was not a gold miner and I did not believe in gold." And as Eric Clapton famously said, "I may be slow, but I may learn." With that said, one of the things that we've had confirmed over the last four weeks is that when the gold prices rises investors will come back into at least the large gold mining companies, if not the juniors, simply because they expect the price of those shares to rise with the gold price. We saw that again over the last four weeks in late June when the gold price rose. We saw a spike in the majors, which shows up here to some extent. It didn't show up in the juniors and I think that the reason for that is that you have a lot of very mechanical institutional investors who are buying shares of gold mining companies that are in major gold mining indices. So, that's why the bullishness occurred within the majors, but did not translate to the miners.
Palladium. Palladium prices have risen from strength to strength. I'll be honest, they're stronger, longer than I thought they would. I personally thought that the palladium price might peak in the first half of this year, but we're actually seeing prices having moved up much more sharply in late June and July. They're challenging the record prices that we saw in February and March. The palladium market is tight and it's going to continue to be tight. We had seen a lot of investment demand from 2002, 2003, 2010, 2011. That demand has pulled back sharply. We did see some investors selling when their palladium price fell sharply at the time of the Resolution of the South African mining strike in 2014. The price of palladium fell sharply and investors stopped selling from their inventories. We've had a very tight market, with deficits, and small surpluses over the last five years. It's continuing this year. We're seeing a small surplus this year. We see the market being tight on a fabrication demand basis, as well as an investment demand. Here you can see we've had a tremendous accumulation of palladium in above ground refined inventories. A lot of that occurred between 2001 and 2011, 2012. A lot of that occurred with investors holding physical palladium. Some of that moved into ETFs, when the ETFs were created in 2013, 2014. It's come back out. A lot of investors who do own physical palladium, prefer to have the physical palladium not in ETFs form for whatever reasons. You also have some metals still held by the Russian government. Metal held by the industry producers and refiners to auto companies. Auto companies, perhaps, stocked up on some of their inventories over the last few years, because of the tight supply and rising prices. We expected that they continue. Our view, as I said, was that the palladium price would peak in the early part of 2019 and then come off somewhat sharply in the second half of this year and into 2020. Our view is still at, that's probably going to happen. We do not see the palladium price falling sharply. We might see some investors unwinding long positions if the price does start showing weakness as it did in 2014, 2015, but we think that the overall tightness of the physical market, the balance between supply and fabrication demand, which is really the surplus deficit that matters, is going to continue to be tight enough that the palladium price will stay high. Now, at this point, I'm going to turn over the microphone over to Rohit and let him talk about the palladium market in greater detail and Rohit...take over.
Rohit Savant: Thanks Jeff. So, I'm just going to start here with palladium supply. We've seen total palladium supply reach a record high 9.7 million ounces in 2018, which is about 1.5% up from 2017 levels. The record volume of supply during 2018, we can attribute that to both an increase in mine supply as well as scrap supply. Mine supply was up the second consecutive year in 2018 reaching about 7.1 million ounces, which is about 2% higher than 2017 levels and was the highest level of mine production that we've seen since 2007, when palladium mine production was at 7.2 million ounces. Scrap supplies has been a major contributor of the total palladium supplies. Palladium secondary supply has been rising basically from strength to strength over the past several years. Previous factors have contributed to this. One is obviously the strength in palladium prices, which helped to bring a lot of the scrap material back into the market. You also have palladium rich auto catalysts stock and then you have stricter regulations regarding electronic stuff. So, you have a lot of combination of factors coming together, which have helped to support the amount of palladium being bounced back.
With that we move on to fabrication demand of palladium. It continues to rise in 2018, for the ninth consecutive year. It touched a record high of 9.8 million ounces last year, which is about a percent higher than 2017 levels. The demand growth did slow in 2018 relative to three years before that. This was in part because of growth from a very high level and also in part of a loss in growth of momentum in the passenger vehicle market. Demand was last year supported by electronics, as well as, from a growing market share of gasoline engine vehicles in Europe and the cost of diesel passenger vehicles. In 2019, we think that fabrication demand will slip marginally from levels that we saw in 2018, but despite that softness you will have palladium fabrication demand at extremely high levels even this year.
Now, we move on to the next slide which talks about passenger vehicles in the the two largest auto markets in the world and in both of these which are primarily gasoline engine markets, we've seen somewhat softness in demand. So, in the case of the U.S., the decline has been less dark this year compared to last year, but in the case of China you see a pretty substantial decline. There's several reasons why sales are slowed in both of these markets. The most important of which we believe is the topping out of the current demand cycle and that in addition to that also macroeconomic reasons for the pullback in demand, especially in China and why we think monetary stimulus could help us slow the decline, but is unlikely to create strong growth in either of these markets at this time. I think what any kind of monetary stimulus is likely to do is slow the decline, but not necessarily lead to a substantial increase in demand. The weakness in both these markets is being offset to some degree by the phase in of tighter emission standards in both the countries. So, that should take off some of the... offset some of that weakness from volume, but nonetheless, we think that these two markets and their slowing demand is something that would weigh upon palladium fabrication demand this year.
On the next slide, we are looking at the composition of U.S. vehicle sales and what we've been seeing is this growing trend of larger vehicles. As of the end of 2018 and even through the first six months of 2019, we've seen this trend continue, where there's a larger proportion of light trucks, basically account for the larger proportion of passenger vehicles and light duty vehicles than they have in the past and this is important for palladium. There's also another factor in addition to emission standards, which helps to offset some of their weakness in the volume of vehicles being sold. So, larger vehicles holding all other factors constant, if you have larger vehicles you have greater amount of PGM loadings in the catalysts. So, this factor is one of the factors that we believe is helping to support palladium fabrication demand.
This next slide talks about semiconductor sales and we saw semiconductor sales rising to record highs in 2018. However, following that, they've been down sharply during the first several months of 2019 as inventories are being worked through after being built up pretty strongly last year. The electronics industry is likely to face some headwinds in the year to come as supply chains get negatively affected by trade tariffs imposed by the U.S. on China. So, we think that this is going to be an industry which will create some headwind for palladium fabrication demand during 2019, as well.
When you look at palladium ETFs on the next slide, ETF investors have continued to be net sellers of the metal and these investors have been selling into the price rally. The large volumes of metal was sold by these products in 2010, 2014, prices have risen sharply since providing good profits to all those investors who bought back then in 2010, 2014. Furthermore, a lot of these investors are not necessarily interested in holding the metal through the long phases of price weakness that we typically tend to see in commodities. The sharp increase that we've seen here are in prices has resulted in a lot of them taking profits instead of building up the inventories further. So, with that, I'll pass this back to Jeff to talk about platinum.
Jeffrey Christian: Thank you, Rohit. My system is not quite as efficiently set up as I would like it to be, but let's talk about platinum. Let's see if we can move this forward. Hmmm...Bear with me. So, the platinum price... let's see if my computer will catch up with me. The platinum price has basically been bouncing along a bottom of for the better part of a year. If you take a longer-term view, you can see that the price has been moving lower to sideways really since 2015, 2016 after the strike in South Africa, but then on a shorter-term basis you can see that its really been since the middle of 2018 when we had that move down in gold, platinum, palladium, silver, in commodities in general from January of 2018 to August 2018. The price had been basically bouncing along a bottom and that reflects a number of factors. The platinum market remains in a surplus of total newly refined supply from mines, as well as, secondary supply relative to fabrication demand. We did see large surpluses in the period 2002 to 2011 and that basically represented investors bidding up the price and buying platinum and a lot of that...those surpluses in that 9 year period actually went into investor holdings. Investors started to sell in 2012, 2013. They pulled back from selling actually in 2014 during the... well, they sold into the strike as did producers sell from inventories during the strike, but then when the price fell after the strike was settled, investors actually pulled back from that. They did buy some more platinum over the next few years, but the enthusiasm at which they've been buying has actually not been particularly strong. In addition to that, what you see is these surpluses appear to be going into producers, refiners, and market maker's inventories and I say appears, because if you look at the forward spread in platinum prices, if you look at the other factors in price of platinum it would appear that you're having industry inventories rise as opposed to investor inventories. That's supported by anecdotal information. One of the interesting things is again you see this big purchase of cumulative surplus between 2002, 2008, 2009, 2010 into 2011 and again they were a handful of very wealthy individuals. Some of them were hedge fund managers and they were buying either for their hedge funds or for their personal positions. There were other investors who were buying it and they pulled back not so much because of price was vulnerable to the downside, they really started to pullback in 2008, 2009, 2010, and 2011, because of the volatility and uncertainty in the market. So, you saw them pullback at that time. That actually sort of came to an end. They haven't really continued to be big sellers, because they're not particularly happy with the price. They have shown up as hedgers on the NYMEX futures and options markets by selling futures short in order to hedge their continued holdings of platinum prices against potential for falling prices. Similar to what we're seeing in gold, we expect the platinum price to continue to bounce along a bottom for the remainder of this year. We do see some upward pressure. Those surpluses that I showed you earlier are diminishing and we do expect the price to show some strength. We don't necessarily see the price rising sharply back to the levels that they were at prior to 2014, at least for the next couple years. On the longer-term basis, we think that that's quite possible, because structural changes that we see in both the South African platinum mining industry and in the automotive use of platinum. So, we do see that on the longer-term basis, but for the next year or so we prices climb their way back to where they were in 2015, 2016, 2017, and 2018.
We're going to talk a little bit about fuel cells. I know there's a great deal of enthusiasm about fuel cells on the part of some people who think that they're going to be helpful for platinum prices and represent a new market for platinum as the auto industry moves away from internal combustion engines burning hydro carbons. Fuel cells have been commercialized, but they aren't really technically, nor financially viable at this point. They're very expensive to operate. The issue of distributing hydrogen efficiently has not been resolved. CPM Group is actually working with a company on liquid organic hydrogen carriers that looks attractive, but right now fuel cell vehicles require either compressed or frozen hydrogen and the tanks to hold compressed hydrogen are $10,000 on a car, just the tank alone, that alone the fuel cell stack. Technically, they're not working. You're seeing forklifts go into various warehouses from large retailers and those stacks need to last five years for commercial competitiveness. There are people in the platinum industry who will tell you their doing that, but if you talk to the warehouse managers, they're saying that those stacks tend to last less than a year and that they have maintenance people in there pretty much a lot of times. Fuel cells are moving forward, but it's relatively small and slow. Unless you can solve a number of technical issues on the stability of the fuel cells and unless you can safely and affordably ship, store, and distribute hydrogen, fuel cells will probably not take off. The big bars here and the years show expectations of platinum demand by the auto industry. Again, you can see on the left hand side, in 1980, when I was only in the platinum business for a couple of years, the platinum industry was saying well by 1988 we're going to be using 350,000 ounces of platinum a year in fuel cells. By 1991, they thought that by the year 2000 we'd be using 500,000. The most recent number we has is from 2018 and they thought well by 2030 we'll be using 500,000 now. The little black bars at the bottom are the actual use and this doesn't really show it, but actual use of platinum in fuel cells is probably on the order of somewhere between 8,000 and 30,000 ounces a year. There are people who will tell you that it's much higher, but if you actually go off and talk to the fuel cell manufacturers and the companies that are using these things, it looks to us as if it's much lower. There is a potential for fuel cells to become much more useful and use more platinum, but there are still technical, commercial, and financial obstacles to that happening. Until those obstacles are resolved, it's not clear that you're going to see that. In addition to that, if you talk to the platinum industry, they say well fuel cells are the wave of the future. If you talk to some people in the automotive industry and in the electricity industry, the auto industry is much more interested in hydrogen engines, which are internal combustion engines that burn hydrogen. They are cheaper. They're low tech, you don't have the technical issues and the reliability issues. They actually have lower manufacturing costs than an internal combustion engine that burns diesel or Petro and they have lower maintenance costs. So, the auto industry says... if you can get us hydrogen cheaply and safely distributed, through the existing infrastructure for gasoline and diesel, then we will use hydrogen engines not fuel cells, because hydrogen engines cost a fraction of what fuel cells cost and they're much more reliable. So, that's sort of where we are with fuel cells. I'm going to turn the control back to Rohit at this point and he'll talk more in details about platinum.
Rohit Savant: Thanks Jeff. So, with the platinum supply, we've seen platinum supply at about 7.4 million ounces in 2018, which was an increase of nearly 2% from chart in 2017. And, that increase that we saw in platinum supply during 2018 was driven primarily by an increase in mine production, which scraps supply actually declining during the year. Some mine production during 2018 was up, because of higher output from both South Africa as well as the U.S. In the case of scraps supply, it came off and it was down about 2.5% to about 1.2 million ounces in 2018. What we've been seeing is that scrap supply has been in this sort of downward trend for several years now and there are a few reasons for this. I mean, again, you're seeing prices of platinum... we are seeing lower quantities of platinum being recovered from scrap auto catalysts. Primarily, because they were either shifted. Platinum has been shifted in auto catalysts or they've been partially substituted with palladium or completely substituted by palladium in some cases. So, essentially, what's been helping palladium scrap supply over the past few years has, to a larger extent, been working against platinum scrap supply in the last several years. We did see mine production increase in 2018, but if you look at mine production over a longer period of time it also has been in a declining trend since around 2006, when it was a little over 7 million ounces back then. If you look at 2018 relative to 2006, mine production is also off on all the basis by about 12% and the only major producer whose production grew during this period was Zimbabwe where you saw production grow by about 15% that year. Most of the major producing regions you actually had mine production come off since that 2006 period. The largest decline was in South Africa. That's primarily because of another numerous issues that you do have in the South African mining industry.
On the next slide, we see the one factor that has been working in favor of South African platinum mining. That's essentially the weakness that we've been seeing in the South African rand versus the U.S. dollar. The boost in revenue from the ongoing increase in the basket price coupled with common pressures to keep mines operating has resulted in platinum supply declining at a much slower pace than warranted by the metals fundamentals. Since supply has been declining at a slower pace than needed to balance the market, it has resulted in ongoing downward pressure on the dollar price of platinum. The weakness in the rand is somewhat a double edged sword in that it helps the miners perform, but it also is creating all this excess supply, which the market is not necessarily needed at this point.
On the next slide, we look at South African Capex and as this chart... as seen in this chart, there's been an uptick in capital expenditures since 2006. It kind of kicked back in 2008 and then somewhat of a decline... it was in a declining trend along with capital expenditure across commodity markets. It sort of bottomed out in 2016. Has grown since then, but this would again be another factor that puts all the decline in mine supply in the [inaudible] and possibly leave the platinum market in a continued surplus, which again would kind of weigh on the price for platinum.
Moving on then to platinum fabrication demand. Platinum fabrication demand has been crawling higher over the past several years and in 2018 was finally back up to levels...2014 was back to about 7.2 million ounces, which was back to levels we had back in 2014. Demand during 2018 was supported by strong demand from commercial vehicles, because these vehicles are primarily diesel and they use platinum intensive catalysts. There was also some support for platinum fabrication demand from petrochemical refining and glass industry. Going to 2019, we forecast marginally lower platinum fabrication compared to 2018 levels.
On this next slide, we are looking at commercial vehicle sales. One of the biggest positives of platinum fabrication going on during 2018 was the robust growth in demand for commercial vehicles across major auto markets during the up. The pickup in global economic growth during 2017 and into the first half of 2018 gave businesses confidence to compete. Capex which helped to a large degree in boosting demand for these commercial vehicles. So, this is...this has definitely been a factor that played an important roll in supporting platinum fabrication demand back in 2018. With that said, as we can see on the next slide, the source of demand is expected to be somewhat weaker this year. The macroeconomic picture... less supportive of growth since the second half of 2018. While we're not expecting a recession during 2019, global economic growth during this year is definitely expected to be a lot slower than what it was in 2018. Commercial vehicles sales during the first few months, so five to six months of 2019, they have been growing, but they have been growing at a slower pace than the comparable period in 2018. In the case of China, we've actually seen commercial vehicle demand down negative, when you look at the first five months of 2019 compared to the first five months of 2018. We think that this slow down in demand growth for commercial vehicles is expected to be...back in demand for the auto sector this year. If economic conditions [inaudible], there would be a direct impact on commercial vehicle demand, which would be negative on demand. Also, in addition to the macroeconomic environment, the commercial vehicle market has been growing at a healthy pace over the past few years. The biggest slide there was a lot of... [inaudible] in demand from major commercial vehicle markets for several years now. So, that strengthened growth coupled with... macroeconomic environment made some growth off commercial vehicles going forward...[inaudible].
Moving on then to passenger vehicles sales. In addition to slowing demand growth for commercial vehicles, it seems to... [inaudible] catalyst demanding markets of passenger vehicles is expected to be on platinum demand from the auto sector. As CR technology is more extensively adopted, commercial vehicles, passenger vehicles, [inaudible]..., tighter emission standards, combine this technology and you'll soon eliminate the use of platinum for catalysts, it reduces the amount being loaded in the catalysts. Furthermore, the RDE tests, which have been in effect since late 2017, starting September 2019, you'll pretty much going to see this applicable to all passenger vehicles, all diesel passenger vehicles, and the continuous monitoring of emissions it's expected result is decreased platinum loading in the catalysts. So, that might actually mean a bit of an offset to some of the weakness...[inaudible]. In addition to a CR catalyst, you also have a reduction in diesel passenger vehicles markets...[inaudible].
Jeffrey Christian: Rohit, you're breaking up on your microphone. I'm not quite sure if there's something you can do about it.
Rohit Savant: I'm not sure there is.
Jeffrey Christian: That's much better whatever you did. You're better now, okay.
Rohit Savant: So, in addition to the CR catalyst, one of the things that has been weighing on the platinum fabrication demand has been the reduction in diesel passenger market share, diesel passenger vehicle market share in both Europe and India. We continue to see a decline in market share in both these countries going forward the only thing is we will probably see is slow rate of decline in future years compared to what we've seen recently. Nonetheless, we do think that the market share for diesel will continue to slowly decline and that's something that has already weighed heavily on platinum fabrication demand and we think it will continue to be on platinum fabrication demand in the near future.
Then you have the big question about substitution of palladium with platinum and on the basis of price there's a very small case for OEMs to switch from palladium to platinum used in auto catalysts. Platinum has been under discount to palladium since October 2017. So, it's been some time now that the platinum price has in fact been trading at a discount to palladium. With that said, the discount of platinum to palladium was very narrow all the way through May 2018 and widened after that to about 7% and has closed substantially since then as of June. So, on an average basis in June 2019 platinum was at about a 37% discount to palladium. Then in March 2019, it actually reached 43% discount to palladium. So, the discount of platinum to palladium is definitely meaningful at this point and so it makes more of a compelling case for OEMs to make that switch to platinum from palladium. There's another... another side to the story is the tightening emission regulations and the increased scrutiny associated with compliance to these regulations that has made these OEMs somewhat reluctant to make changes to their catalyst formulations. So, the past two years, over the past two decades or so... no two decades. Platinum, rhodium catalysts for gasoline engines have been fine tuned to meet these tightening emission standards and now Korea introduced platinum as possible and is also a fairly compelling case at this point, but it would require some optimization to achieve the results that the platinum and rhodium catalysts are currently achieving. So, this... this is already a great deal of hesitation on the part of OEMs and could slow the process of re-introducing platinum into gasoline catalysts, but we do expect this change to occur. We just don't think it will occur as quickly as the price suggests it should.
Platinum jewelry as we can see on the next slide. Platinum jewelry demand declined slightly during 2018. It was at about 2.3 million ounces, just down about .1% from 2017. The weakness in Chinese platinum jewelry demand was the primary factor driving a wave of total platinum jewelry demand. China's the largest platinum jewelry market and slowing economic growth there has been holding discretionary purchases, as we've seen in other markets during 2018, other markets within China. Ongoing softness in economic growth in China this year as well. We think they'll [inaudible]... on demand for platinum jewelry during 2019. With that said, weakness in Chinese platinum jewelry demand, also to a large extent offset by strength in demand from other countries. Platinum jewelry demand in China rose about 4% during 2008. There are a few factors that have caused it to peak. One is the lower platinum price helped to improve margins for jewelers who continued to sell platinum jewelry as a premium product. Though they held their margins owned by these jewelers of platinum jewelry it has encouraged them to promote and push platinum jewelry to any consumer. That was one factor that helped platinum jewelry demand. Another was healthy economic conditions in the U.S. So, the past few years have helped to boost demand for diamonds and this has helped benefit platinum jewelry by demand to a large extent, because platinum is a preferred metal for setting diamonds because of its strength. They also have a lot of promotional push by the Platinum Guild in India promoting platinum as a desirable metal for jewelry there and we are seeing an increase in platinum jewelry demand in India. [Inaudible] So, you are seeing areas of increasing demand for platinum jewelry there as a result of all its promotion. So, all these factors collectively helped to offset some of the weakness that we've been observing in Chinese platinum.
With that let's just go to investment demand. Platinum invests at lows of about 240,000 ounces of platinum in 2008. Investors have earned large net piles of platinum products during the first six months of this year. During the first six months, they added about 690,000 ounces of platinum upward. These investors seem to see potential limited downside in prices on present levels and have been seeing prices forming a base around current levels. The fact that prices aren't below the current levels and have been at deep levels for a substantial amount of time is giving them additional confidence of that this could be the bottom in platinum prices and there's more upside potential than downside. On the other hand, when you look at platinum non-commercials as you can see on this slide, institutional investors in Nymex are less positive about all the metals than other investors. [inaudible] Investors maintain large sharp positions into 2019 as well, which helps explain the weakness in platinum price before. With that, I bounce this back to Jeff and he'll speak about rhodium.
Jeffrey Christian: Ok, thank you. Thank you Rohit. So, a little bit on Rhodium and then we'll talk about the minor PGM and open it up for questions.
Rhodium prices have started to rise sharply and we can see here this only goes back to 1992, but really starting around 1981 when the U.S. auto industry started using rhodium in its catalysts to work on NOx emissions, nitrous and nitric oxide emissions. You start to see these periodic bouts of sharply higher rhodium prices and we saw one in the early 80's, and we saw one in the early 90's, saw one around 1999, 2000, and a big one later. We seem to be moving toward another one now. If you look at the rhodium market... the rhodium market has basically been in the deficit for most of the time since the U.S. auto industry started using rhodium. Deficit again being, total newly refined rhodium from mines and scrap, less fabrication demand. In the 80's, when it was primarily in the United States. Europe and Japan phased in in the early 80's. Europe phased in the late 80's early 90's. You start to see growing deficits, but the deficits were able to be accommodated by a large amount of rhodium that had been mined prior to 1980, because some mining industry was moving toward mining for the platinum and palladium, and the rhodium was byproduct, and people did not want it, it went into producer inventories or other inventories. In the 90's we actually saw a period of surplus, which represented basically post Soviet Russian sales of inventories. The government discovered that the inventories were being sold off and put an end to that in 1997, at the end of 1996, 1997. You run back into a period of deficits, which really by and large has continued until today. One of the big questions is, how much rhodium is still out there? Because we've had such a long period of time, 40 years of persistant deficits, and it's a factor that I'll mention again with iridium and ruthenium, it's an issue that's there. Our view is that the auto industry is going to continue to need rhodium. It's going to need growing amounts of rhodium and this is going to continue to apply pressure on prices. We have the price of rhodium having risen sharply since June 2016, moving in a plateau for the next year or two and that reflects some of the economic conditions in the auto industry that Rohit was talking about with platinum and palladium. We do think on a longer-term basis the rhodium balance is such that you probably will see renewed upward pressure on rhodium prices, somewhat to what we've seen at those times in the past. I'm going to turn the mic back to Rohit for couple slides on rhodium supply and demand and then we'll go back into minor PGMs and then open it up for questions. Rohit.
Rohit Savant: So, with rhodium supplies it's been largely flat. When we look at total rhodium supplies, it's been largely flat about 980,000 ounces since 2015. In 2018, it wasn't any different. It was at about that 980,000 ounce level. Like platinum, rhodium mine production has been in a declining trend since 2006, when it reached record high. This is not really surprising, because the vast majority of rhodium supply comes from South Africa. PGM mine production from this country has been in a declining trend for years. Much of that loss in mine supply though has been offset by gains in secondary supply, which has helped the total rhodium supply slide over the past several years. It's a fabrication demand. On the next slide, rhodium fabrication demand rose to a fresh record high for a little over a million ounces during 2018, which is about a percent higher than 2017 levels and was the second consecutive year that rhodium fabrication demand rose to a record. Early demand from auto-casts was the primary driver of rhodium demand in 2018. Meanwhile, rhodium demand was negatively affected to a certain degree in the glass sector, because of the shock run off and lowering prices last year. The tightening emission standards, which are particularly focused on the reduction of NOx emission, hydrogen oxide emissions have been an important role in driving rhodium demand of auto-casts higher in recent years. The slowdown that we saw in passenger vehicle sales in 2018, weighed on total rhodium demand during the year. The softness and weaknesses growth was more than offset, however, by the tightening of emission standards in both the U.S. as well as China. So, the emission standards in the U.S. were implemented in 2017 and will be fully phased in by 2025. While in China, the China emissions standards also will be phased in by 2020. So, this ongoing phase in of these emission standards of the largest auto markets continue to support rhodium fabrication demand. So, with that I'll pass this back to Jeff to speak about the minor PGMs.
Jeffrey Christian: Ok. We'll go very quickly over the minor PGMs, because well they are minor, but they are interesting and they're something that I've always found fascinating since the late 1970's. Ruthenium and iridium prices have risen very sharply over the last two to three years, really starting around 2017, and what we're seeing you can see... ruthenium prices, which historically have been under $100. We had a couple of spikes higher than that. When you see new uses coming in in 1983, 1984, someone looked at using ruthenium in auto-casts in 2000 and 2001. You had someone looking at ruthenium in some catalytic applications with natural gas 2006, 2007, 2008. They rose partly because everything was rising, but you also had some industrial uses coming into the market, including ruthenium use on hard disk drives along with platinum, which increased the thermal stability and the consequently the disk life and the disk density, storage density capacity. What we've seen over the last couple of years is the price of ruthenium has risen, because there are a number of new uses. Some of these uses are relatively small, but when you put them all together, you have a very tight market.
You see a similar situation in iridium. Iridium has a number of new uses. There are electronic uses, there are electro-chemical uses, there are chemical catalyst uses. Iridium is being used in crucibles to make crystals for LED lighting. What you've seen is a very tight market with both ruthenium and iridium and I can show you osmium for what it's worth, which it has been relatively flat for 30 years. With ruthenium and iridium, these are by-product metals and in many cases for decades they were not all fully refined. As you would go through the refining process and up-hauling metallic property, you would break out the copper and nickel into one matte. You would break out the PGMs into another product. You would refine the palladium, the platinum, and the rhodium. If you had excess iridium and ruthenium, you might not actually take it to final refined form. You might put it in a drum and store it against those days when people actually needed it... and those days when people actually needed it have arrived. You have a number of uses for iridium and ruthenium, new uses, but some of them are technologically drive, some of them are regulatorily driven. So, for example, there's been a new passage of regulations for international maritime, where you can no longer just dump your bilge water. You have to purify it before you return it to the ocean. Iridium and or ruthenium can be used as catalysts in purifying that water. So, you've seen all of a sudden retrofitting, well first, new ships being built have to have this and then older ships at sea have to have this retrofitted. So, you've seen demand driven partly by regulations at his point and that's probably going to continue. It's going to put pressure on these metals, because again you don't know how much of the metals are readily available, and you don't know how much of the metal is in refine form, and you don't know how much of the metal is in those drums that needs to be refined before we run out of things. These are extremely secretive opaque markets. We're actually updating our iridium and ruthenium report at present. Looking at projections for the next 10 years of supply, demand, and price for these metals and it's a very difficult thing, because of the secretive nature and the disparate parties that are actually involved in these... in using these metals... to see how much is actually out there still available to meet future demand trends. There's a lot of... there's a lot of potential demand. The question is will the supply be available to meet it and what will happen to the price in order to encourage the supply to meet that demand or to cause industrial users to find substitute technologies from the ones that use iridium and ruthenium. I'm going to open up to questions now and I think that Rohit... are you going to run the question and answer period or shall I?
Rohit Savant: I can do it.
Jeffrey Christian: Okay. Please do it. So, thank you. We've gone into an hour and fifteen minutes now into the presentation. Some of you know that we have been concerned that the complex nature of these markets, gold as well as platinum group metals, doesn't really lend itself to an hour presentation in a roadshow, and we have been trying to find ways to change the nature of what we do in terms of our presentations of this information to institutional investors and others. These webinars, which we are developing this year, are one of our approaches to trying to find a better way to communicate our knowledge, information, research, statistics, and analysis to institutional investors who really need to understand the complexity of these markets. On that, I'll turn the microphone over to Rohit for Q&A.
Rohit Savant: There are no questions at this time. Please feel free to send a question to the question box on your computer screen.
Jeffrey Christian: We can understand the idea that after 75 minutes of presentation you may not want to continue the conversation, but if you do have a question please let us know.
Rohit Savant: So, we have a question here. It says, "Please explain the price rise in palladium versus the ETF holdings sell off." We think that you've been seeing this sell off in palladium ETF holdings in part because you have this sharp run-up in prices, which allows a lot of these investors to lock in profits. Seeing the price move up strongly within a very short period of time, which makes some people uncomfortable about how long and for how long this can be sustainable. You also seen investors who have held on to this metal for an extended period of time, now look at this peak in prices as an opportunity to exit the market. So, I think that explains why you.... liquidation of ETF of palladium ETF... I don't know if you have something to add to that Jeff.
Jeffrey Christian: I thinks that's pretty much the same... I had said something earlier, which was that there are investors... I think if you look at the palladium market and you look at other precious metals markets, there are investors who are more comfortable with ETFs and there are some investors who are not comfortable with ETFs who prefer to hold the metal in unreported inventories. In the late, 70's early 80's, when I started doing research on the PGM markets, I was introduced to some investors in Switzerland who were holding physical palladium and some of those people or their children now hold that same metal. They have never sold it. They bought it at $35 an ounce and it's sort of core part of their wealth as opposed to an investment. It's very funny, because a lot of our investors who get involved in ETFs see themselves as long-term investors–– I bought this stuff 10, 15 years ago and now I'm selling it–– and these guys see that as a short-term investment. So, it's kind of ironic, but I do think that you've had any number of investors as Rohit said, you know, who had good profits there, price has risen to record levels, let's take some profits here. You have other investors who have sold off their palladium for more strategic portfolio management reasons and then you have other investors who simply are more comfortable not holding ETFs, they're holding physical metal.
Rohit Savant: So, we have another question. It says, "Please explain the marginal gap between platinum and palladium and the cost that go into the switch, historically what was the gap?" So, just to be sure you're talking about the switch from palladium to platinum in auto catalysts. I think a part of the decision is related to the anxiety associated with producing a catalysts, which may not work effectively in the emission standards and I think that's what's really causing a lot of these OEMs from making that switch. It's less of a price of cost issue at this point. Also, Jeff, I don't know if you have an idea of what the historical gap has been with regards to the switch.
Jeffrey Christian: Well, it used to be that the ratio for platinum and palladium substitution across several different applications in industries was 2 to 1, but changes in technologies over the last 10 or 15 years have made it more of a 1 to 1 shift. So, you could actually start moving from between platinum and palladium on purely a price basis at 1 to 1. As Rohit said during his discussion on the platinum market, there are non-price issues that come into play, including the relative efficacy of platinum versus palladium and so that's where it is. I mean, platinum traditionally was at a premium to platinum and it was traditionally more than 2 to 1, partly because the Russian government or the Soviet government at the time really didn't want to see substitution away from palladium and platinum. So, they would sell more palladium if the price of palladium started to rise close to half of what the platinum price was. I'm not sure if that answers your question, but we can go on to the next one and you can ask a follow-up if you want.
Rohit Savant: The next question here is..."Do you think there could possibly be new uses and ultimately a new market demand for platinum in the future?" Yeah, there will be new uses for platinum. There's constantly new technologies being developed, which require these metals. Whether they'd be able to substitute for the volume of demand that you're seeing from auto catalysts is less likely. There probably may not be uses, which can do that. Also, the other thing with technology is that there's a constant effort to reduce the amount of metal going into all of these new products. So, that's another factor that works against any increased demand from these new uses. There will be technologies that will be developed, where they will use PGMs in the future.
Jeffrey Christian: I had a couple things. First thing is auto catalysts are not going away anytime soon, because for all the talk about electric vehicles the reality is that diesel and gasoline vehicles will continue to be the bulk of the vehicles on the road for some time. There are a lot of logistical issues and infrastructure issues, and financial issues in terms of building the capacity to supply the components of electric vehicles, to supply the electricity, and to supply a stable electric grid, which probably would mean that electric vehicles will be much slower in being introduced than some of their enthusiasts say. We've done a lot of work with projections out to the year 2050 of future automotive propulsion technology looking at fuel cells, electric vehicles, hydrogen engines, gasoline engines, diesel engines, compressed natural gas, and you're going to be going through a period of amazing technological changes, not only in the auto industry, but across industries over the next several decades. Those technological changes are going to be compounded and confounded by financial constraints. I won't bore you with the details about what's going on between the auto industry and the equipment of their component manufacturers, but yeah. When the auto industry decided that it needed platinum and palladium and ultimately rhodium for its catalysts, which was in the late 60's, early 70's, with the U.S. clean air act passed in 1970 with the introduction of auto catalysts using platinum and palladium for model year 1974, the auto industry went to the South African platinum industry and said, "We're going to need a lot of platinum and palladium starting in 1973." The South African industry said, "We're going to need to build new mines," and they signed a 10-year agreement. They had minimum off take agreements and minimum price determinants, and all sorts of things that were in there to protect the South African producers so that they could feel comfortable in investing in those platinum mines. That was in the early 1970's. Those days are gone. The auto industry is now going to the manufacturers saying, "We don't need one million motors for one million in electric vehicles. We need 30 million and you need to spend 100s of millions of dollars on motor factories, but you know what, we may not actually need them. So, we're not going to make a firm off take agreement and we're not going to give you any financial support. Given what's going on since the global financial crisis, we the auto industry can borrow as much money as we want for squat, but you guys a smaller often privately owned manufacturers of components for automobiles, you can't borrow money at anything, but we're not going to provide any financial support or off take agreements or anything else. But, we need you to make your manganese sulphate, nickel sulfate, cobalt sulfate, controllers, electrical programs, electrical grids, electrical capacity, motors, we need you to make all these things. We need you to build the factories to make them, but we're not giving you off take agreements and stuff." So. there's a lot of infrastructure issues that are going to slow the introduction of electric vehicles compared to what some people think. In that environment, people are going to be using platinum, palladium, and rhodium to clean up the auto emissions for decades to come. You may see that by 2050, a third of the vehicles are electric vehicles or maybe some fuel cell vehicles, but that means that two thirds are still going to be burning Petro. So, there's a big future for platinum and palladium. There will be a need to find new uses and those new use will come. We've seen this in platinum and in palladium over the decades. I mean, it used to be that platinum was used as a chemical catalyst and then petroleum industry started developing during World War II and after World War II a catalytic reforming and hydrocracking came in and platinum found new uses in petroleum refining, and then the auto catalyst came in. In palladium it used to be electronics and people don't realize in the 1970's and the early 1980's the largest refiner of palladium was AT&T, because it had used palladium switches for electromechanical switching gear and then in the 1970's, 80's, and 90's they moved to electronic gold plated switching gear and they were refining all the palladium. So, that palladium was primarily electronics and then the semi-conductor industry came along, and then the auto catalyst industry came along. If you look at these metals, the history of their markets are that you have new uses coming in replacing old uses, squeezing them out by being more price insensitive and needing the metal. So, I think there are a lot of new uses that are coming for platinum and for palladium. For platinum, with the price differential between platinum and palladium right now, if you're a scientist at a manufacturing plant, people are telling you look at platinum instead of palladium for new uses. So, I do think that there are new uses. We don't know what they are. If you look, Johnson Matthey has a wonderful report, which is a technical report that lists all of the patents that have been being filed around the world. There are enormous numbers of patents being used for potential uses for platinum.
Rohit Savant: So, there aren't any more questions at this time.
Jeffrey Christian: Okay. If there are no other questions at this time, I think we will say thank you. We will end the conference and will probably, hopefully, be talking to you in another couple months again. Good-bye!
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