By Justin Spittler, editor, Casey Daily Dispatch
When chaos hits, most investors panic.
They sell without thinking. But the best investors understand that crises can be huge opportunities.
You see, investors often “panic sell” during a crisis. They dump high-quality assets out of fear.
This allows savvy investors to scoop up world-class companies at deep discounts.
• But that’s not the only kind of opportunity that arises out of crises…
Crises can also disrupt global supply chains. They can knock the balance between supply and demand out of whack. And that can lead to huge price spikes.
This is especially true of commodities. I say this because natural resources are the building blocks of civilization. The modern world simply wouldn’t exist without them.
The world doesn’t stop using copper, iron ore, or lumber when there’s turmoil. And more often than not, people end up paying steep premiums.
These disruptions in the commodity space can trigger explosive rallies.
As I’ll show you today, one key metal in particular appears to be on the verge of a major supply disruption.
• I’m talking about platinum…
Platinum is a precious metal, like gold and silver.
Many people own platinum coins as a store of wealth. Platinum also finds its way into a lot of jewelry.
But platinum is more than just a precious metal. It also has important industrial applications. Its primary industrial use is in catalytic converters – a specialized vehicle part that reduces harmful emissions. But it’s also used in surgical tools, lab rotary utensils, spark plugs, and even the circuits in your cell phone.
That said, this essay isn’t about platinum demand. It’s a supply story…
And to get the full picture of the supply story, we need to look at what’s happening right now in South Africa.
• That’s because South Africa produces 73% of the world’s platinum…
To put this into perspective, Saudi Arabia accounts for about 12% of global oil production. So South Africa is about six times as important to the platinum market as Saudi Arabia is to the oil market.
South Africa is also home to 91% of the world’s platinum reserves.
When the supply of a commodity is this concentrated, it doesn’t take much to trigger a major disruption.
And that can happen sooner rather than later…
• You see, right now South Africa appears to be headed for a full-blown crisis…
I say this because the country looks like it’s about to embark on a massive property confiscation scheme. Crisis Investing chief analyst Nick Giambruno, who’s been following the situation closely, explains:
South African President Cyril Ramaphosa plans to change the constitution to allow for land expropriation without compensation. This is when the government steals land from an owner and gives it to someone else, in this case, based on race.
In his recent issue, Nick showed how Zimbabwe did the same thing in 2000. It introduced a mass confiscation of private property… a “land reform program,” supposedly to correct past injustices. It confiscated farms from white owners and gave them to government supporters.
And that ultimately destroyed the country’s economy.
And it now looks like South Africa is headed down the same dark path.
• Of course, politicians throw out crazy ideas like this all the time…
And many of those never get put into law or policy. But there’s a good chance South Africa follows through with this.
After all, Ramaphosa’s party controls about 63% of the Congressional seats in South Africa’s National Assembly.
According to Nick, it’s no longer a question of if South Africa expropriates land from its white citizens… but rather, when:
Bottom line: A solid majority of South Africans support the expropriation of land without compensation in some form or another. It’s only a matter of time before it happens. Land confiscation and the ensuing economic collapse are already baked into the cake.
This is clearly bad news for the people of South Africa.
But it’s also a huge opportunity for speculators. That’s because turmoil in South Africa could set the stage for a monster platinum rally. More from Nick…
The impending chaos there all but guarantees an enormous supply disruption for platinum… Simply put, the stage is set for a supply shock – and price spike – of historical proportions.
• This is the last thing South Africa’s mining industry can afford…
Aside from the supply threat posed by South Africa following Zimbabwe’s lead, the country’s mines are already in terrible shape. And they’re getting worse…
First, half of South Africa’s mines are unprofitable. And others may become unprofitable because of operating cost overruns or rising labor costs. This means some of them could shut down, even without an all-out crisis in the country.
Second, labor is the biggest contributor to high costs. And South Africa’s mining unions are exceptionally strong. So cutting costs is hardly an option.
• Nick isn’t the only “crisis investor” closely watching this situation, either…
Casey Research founder Doug Casey had this to say in the latest issue of Crisis Investing:
Nobody wants to invest in a place where property rights are ceasing to exist. Nobody is going to put any significant capital in there, and they’re not generating any domestic capital.
I just don’t see how the mining industry can continue there. It’s a far cry from the 1960s when these mines were making enough money to pay, on average, 10% dividends with gold at only $35 an ounce.
In short, South Africa’s mining industry faces serious problems. And those problems could soon lead to a massive global supply disruption.
All else being equal, that’s a recipe for higher platinum prices.
With all of this in mind, consider speculating on platinum if you haven’t yet. You can easily do this by buying the Aberdeen Standard Physical Platinum Shares ETF (PPLT). This fund is designed to track the price of platinum. As with any speculation, don’t bet more money than you can afford to lose.
January 24, 2019
P.S. I also encourage you to check out Nick’s advisory, Crisis Investing. As you’ll see, platinum isn’t the only metal poised to soar because of turmoil in South Africa. Another key metal could also soar in the months ahead.
Nick has found the perfect vehicle to bet on both of these moves… and it’s a screaming buy right now. In fact, it’s trading at around a 7% discount to its fair value. But Nick doesn’t expect it to stay this cheap for much longer – so be sure to act soon. For more details on how to receive Crisis Investing, click here.
Doug, I am surprised at the infatuation some of your readers have for authoritarian regimes, as reflected in the Reader Mailbag responses to Doug’s interview on Alexandria Ocasio-Cortez. Terry, for instance, writes, “China is a total socialist/totalitarian regime that has lifted over 800 million out of poverty while still creating 1.34 million millionaires.” A “total socialist/totalitarian regime?” Really? In fact, while there is sadly a massive state apparatus in China, it was the post-Mao encouragement of marketplace activity, private property, and the opportunity of obtaining personal wealth that has dramatically lifted the standards of living for millions of Chinese – not its “socialist/totalitarian” aspects.
Then there is Ian, who scorns “anarcho-capitalism” for its alleged inability to provide “water and sewage” systems, preferring, it appears, the wonders of communist Cuba, from which thousands risked death at sea in makeshift rafts rather than continue life in Cuba’s communist paradise. As to the water/sewage topic, I refer Ian to Water Capitalism, by Walter Block and Peter Nelson, wherein the argument for a free market in water and associated services is skillfully defended.
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