Download now: How To Invest in the Coming Bitcoin Boom

Industrial Gold Demand

Can Gold Destroy the Platinum Market?

Posted December 18, 2009 at 11:52AM

It's been the 'Holy Grail' of the gold market for decades...

A mainstream industrial application.

Today, technical breakthroughs in automobile emissions devices may have just ended that wait.

Gold may be the next generation of "technology metals," but what's good for gold may be devastating to other members of the precious metal family.

In fact, advancing technologies in autocatalysts may cause...

Demand for Platinum and Palladium to be Cut in Half

One of the biggest risks to platinum and palladium prices has always been their heavy dependence on the automobile industry.

That's because more than half of the world's demand for these metals comes from the global autocatalyst market.

So a new autocatalyst technology that doesn't require their use puts platinum and palladium prices in a very sensitive situation.

And that's exactly what started to worry platinum and palladium investors when one company developed a new metal alloy that substituted traditional catalyst metals for gold.

Privately-owned Nanostellar Inc. recently designed and developed a new metal alloy for autocatalysts using gold for the first time.

The company says the new alloy can improve the performance of diesel emissions control catalysts by 25% to 30%.

The substitution of gold for platinum in autocatalysts even makes good economic sense.

Gold is ten times more abundant, and therefore has always been much cheaper than platinum.

The world's supply of gold is also less geographically concentrated. More than 90% of the entire world's platinum is produced from only four mines in Russia and South Africa. Gold, on the other hand, has been discovered in economically minable qualities on six continents. This makes gold less prone to output disruption.

The problem with substituting gold for platinum or palladium in autocatalysts, however, has been in the chemistry.

Gold is an excellent oxidation catalyst, but high temperatures greatly reduce the metal's catalytic qualities.

Will Gold Completely Replace Platinum or Palladium?

Autocatalysts convert over 90% of a vehicle's exhaust pollutants — including carbon monoxide and particulate, which contains known cancer-causing compounds — into less harmful carbon dioxide, nitrogen, and water vapor.

For now, probably not.

And the demand for platinum and palladium is safe.

At the moment, the financial incentive to use gold over platinum is no longer quite so attractive.

Gold prices are currently about $1,100 an ounce, compared to ~$1,400/oz for platinum. Even though gold is still 20% cheaper than platinum, the additional research, development, and manufacturing costs whittle this savings down.

Ultimately, if gold should happen to progressively replace platinum in autocatalysts, platinum prices would quickly fall, making it again more cost-effective.

So it appears that the only real advantage gold has in this context is its more favorable supply profile.

This may be attractive enough to persuade car companies to consider using it as a catalyst at some point in the future, so long as the price differential becomes rather more competitive.

For the time being, however, it appears that gold will not replace platinum or palladium in autocatalysts.

Autocatalyst technology, however, continues to develop. And it appears that a gold/platinum/palladium alloy — such as the one developed by Nanostellar Inc. — could be used in vehicle emissions control devices for diesel passenger vehicles in the next couple of years.

And here's the thing...

Gold is rapidly becoming one of the world's top "technology metals." It is one of several "technology metals" included in the $273 billion worth of rare earth elements found in Greenland vital to important modern technologies.

Industrial demand for gold is still weak compared to other precious metals. But developers are finding new industrial applications, like Nanostellar's catalyst alloy, for gold all the time.

And in the coming years, advancing technologies will inevitably create even more growth opportunities in the industrial demand for gold.

Good Investing,

Greg McCoach
Editor, Wealth Daily
Investment Director,
The Mining Speculator
Greg McCoach's Insider Alert


Buffett's Envy: 50% Annual Returns, Guaranteed