Precious Metals compared to Bitcoin seem to be a more Reliable Investment Instrument
Attractiveness of bitcoin as an investment instrument rapidly grows hot on the heels of just as rapid increase in the rate of this digital currency. Nevertheless, as noted by the analytics of the international group of companies PLAURUM, one should yet be careful with bitcoin. Although precious metals seem to be not as profitable as bitcoin, they are a much more reliable and stable investment. At the same time, the principles forming the basis of bitcoin operation are being actively considered by the largest world producers of precious metals.
In 2017, all the platinum group metals, except for platina, show a strong upward trend. From August 2016 to October 2017, the price for palladium, rhodium and ruthenium grew by more than 2 times and is currently equal to $960, $1,650 and $90 respectively.
In October 2017, rhodium and ruthenium grew by 30%. So, rhodium grew from $1,185 to $1,650, while ruthenium – from $70 to $90, and it is probably not a limit. Such a rapid growth evidences a significant excess of demand over supply, while considering the complexity of increase in supply on the market of rhodium in the short-term, this deficit will continue. Besides, the main direction in use of rhodium is exhaust catalytic converter systems. And as the automotive market is not expecting the diminution in demand yet, then one should not expect a significant change in the situation. A long-term growing trend on the market of rhodium is being formed with a good growth potential up to $3,000 per ounce in the next 2-3 years.
Speaking about bitcoin, the fuss about it is caused by its great popularity and extremely limited supply. Since 2015 bitcoin has grown from $300 to approximately $7.1 K, i.e. by more than 20 times. More and more companies all over the world are being involved into this digital currency mining; some countries start accepting it as a real currency; all this supports economic stability of bitcoin. However, steep rises of quotes for some investment instrument, including precious metals, often appear to be the same steep fall. A bright example is the situation with rhodium observed over the period of 2003 – mid-2008.
That time the price per ounce of rhodium grew from $500 to $10,000, it means by 20 times. There was a powerful long-term trend with heavy growth rates of the world automotive industry at the background. At the same time, the world production of rhodium remained almost the same, which caused the chronic deficit of this metal on the physical market. Exactly this deficit provoked the extreme rise of the rhodium prices, lasting till the crisis 2008, which affected absolutely all the markets. Beginning from June 2008, the rhodium price started rapid adjustment and in just months it crashed from $10,000 to $1,000. Afterwards its rise to $3,000 was recorded only in 2010, and then during 6 years the rhodium price was slowly descending to $600. And only since mid-2016 rhodium has started to grow again.
The dynamics of prices for rhodium and bitcoin in comparison looks rather interesting.
(Click on images to enlarge)
Diagram of Rhodium Price over the Period from 2002 to 2008
Diagram of Bitcoin Price over the Period from late 2014 to late 2017
Despite the difference in the time periods, the correlation between the rhodium and bitcoin price exceeds 93%. Compared to rhodium used in industry, bitcoin is not material by itself, and its mining procedure has no direct application to a real economic sector, while the expenses for the electricity and the mining equipment are quite real. At the same time, today no one is able to predict, when, why and to what rate the bitcoin quotes may fall. For this reason, rhodium with its long-term trend of gradual growth as other precious metals looks currently more attractive for the investor.
Nevertheless, the concerns about bitcoin do not mean that the producers of precious metals are not interested in the principles forming the basis of digital currency. Today the PLAURUM Group, the same as the other participants of the global market of precious metals, study with interest the possibilities of the blockchain distributed ledger technology application for development of the industry.
About Plaurum: Plaurum brand incorporates production facilities in Russia (JSC “EZOCM”, JSC «UPCR», LLC «UPCP»), Central Europe (Safina a.s.), and the People’s Republic of China (Guoda Safina), as well as sales offices in the USA, Slovakia, Poland, Romania, and Kyrgyzstan. The Group is developing the following major dimensions: processing poor man-made and mineral hard-to-extract raw materials containing precious metals, providing services of purchasing, processing, refining, and delivering refined precious metals, manufacturing industrial materials and goods from alloys based on precious metals, providing engineering services on developing new technologies and products, analyzing different types of raw and other materials containing precious metals, developing qualifications and a service package on rare-earth and non-ferrous metals.