Costco Wholesale (NASDAQ: COST) tests retail appetite for platinum (NYMEX: PLF5) with goddess-etched bars
Costco Wholesale (NASDAQ: COST)—a members-only warehouse club known for its bulk offerings of everything from toothpaste to smoked salmon—is now teasing investors who favor precious metals with a new investment thesis: one-ounce bars of solid platinum (NYMEX: PLF5). The move is noteworthy as it could show how much retail appetite there may be to use the rare metal as a safe-haven store of value versus its more traditional applications in industry and jewelry.
Platinum has historically been more expensive than gold (CME: GCZ4) because it’s rarer and has numerous industrial uses that range from catalytic converters to laboratory equipment. That started to change in 2015, however, as investors lost confidence in the global economy and began hedging their bets with gold, according to a study published this year in the Bank & Credit journal. It cited the gold-platinum price ratio, which remained under 1 for decades before inverting and reaching an all-time high currently around 2.7. That means an ounce of gold currently costs almost three times as much as an ounce of platinum.
“It raises the question whether platinum – like silver – is undervalued in relation to gold,” the authors of the study wrote, highlighting the latter metal’s use by central banks around the world as a global reserve asset. “The supply of platinum remains lower than that of gold, but demand for platinum remains strong due to many industrial applications…Gold remains a safe-haven asset, while platinum is an industrial metal. Therefore, the gold-to-platinum ratio is a useful indicator of confidence among investors and gold tends to outperform platinum when this confidence is deteriorating.”
Indeed, gold—along with its little brother silver (CME: SIZ24)—has surged almost 40% this year, with the price for an ounce reaching $2,707 and $31.85, respectively. Platinum, by comparison, has only increased 10.8% over the same period, with an ounce now fetching $1,004. The relative underperformance suggests investors worried about inflation, loosening fiscal policy and deficit spending aren’t viewing the more industrial metal in the same way they do gold and silver. That’s why Costco’s new offering is worth watching, as it could start to bring more attention about the asset to its loyal customer base.
While it’s long sold gold and silver jewelry—in addition to emergency food rations favored by so-called doomsday preppers—Costco made its first major move toward serious precious metals investors last year when it began selling Swiss-made gold bars. They tended to sell out immediately, with some analysts estimating the retailer moving as much as $200 million a month. The new platinum bars bear the same design as the gold ones and feature the bust of a Roman goddess of prosperity.
“When we load them on the site, they’re typically gone within a few hours and we limit two per member,” CFO Richard Galanti said last year about the gold bar offerings, although it remains to be seen just how popular the platinum counterpart will be. Costco’s website currently limits customers who want to purchase the new platinum bars to one transaction per membership, with a maximum of five units.
Anyone wanting to rush out and buy a platinum bar at Costco, or trade futures, will want to do their research and tread carefully. While platinum is like gold and silver in that it’s favored for jewelry and some forms of coinage, it has fundamentally different industrial uses and is also more volatile with less liquid markets. It’s also harder to sell precious metal in bar form versus holdings in funds like ETFs. According to a study published in the International Journal of Economics and Finance this year, the most important dynamic that affects the price of platinum is the concentration of mines in South Africa and Russia and the heightened political risk that entails. Nearly 41% of demand for the metal comes from the automobile industry, while coinage and investing account for about 11%.
“The Gold/Silver pair seems to respond quite differently than that of Palladium/Platinum to market shocks, whereas Platinum acts as a temporary haven during market uncertainty,” the authors wrote. The World Platinum Investment Council expects medical demand for platinum to rise 3% this year as it’s increasingly used in cancer treatments. Strong demand for traditional gasoline-powered automobiles, meanwhile, has been seen as another factor that could be supportive of prices.
The most enthusiastic gold investors—frequently known as gold bugs—have been rewarded with one all-time high after another amid ongoing concerns about inflation and money printing by central banks, although many will likely never part with the gold bars stashed in their safes and bank deposit boxes. Amid fresh questions about just how much further the rally can go, however, Costco is giving its customers another option to protect their savings and possibly ride a new wave of precious metal appreciation. Whether they will take it, and how much demand there will be, remains to be seen.
