Tech has dominated the economy – but the real world is about to strike back

Even money itself has gone digital. Only about 3% of money globally is now in physical form. Bitcoin is now (measured by market cap, at least), the 13th largest currency in the world. It didn’t exist 15 years ago.

The key to this rapid growth is scalability. A digital product can be endlessly and instantly copied. I can design a fantastic app once, upload it to the app store once, and it can be downloaded a million or a billion times. If Google can get some new groovy feature in its search engine, then once implemented it’s almost infinitely scalable.

But let’s say I design a fantastic washing machine. It takes much longer to get this washing machine to the world – the fabrication and distribution are all tricky, but perhaps most difficult is the burden of regulation in the physical economy, particularly as it attempts to cross the national borders.

By contrast, the economy of the internet is (almost) borderless. The digital space, or certainly the areas where the innovation is, is largely unregulated – how do you regulate something that hasn’t been invented? So digital escapes the ties of regulation that curb the growth of the tangible.

Then, because of the extraordinary speed of growth in digital, there is the potential for investors to make far quicker returns on their investment. And so the digital economy attracts the most capital, the most talent and so on.

With this in mind, let us turn our attention to metals.

The physical world is treacherous and time-consuming

You don’t get much more tangible than metal. Mining is in many ways the most analogue industry there is; it is the very opposite of the dynamic digital world. A geologist is studying rock formations that took thousands of years to take shape, and will take decades to mine.

Why you should buy palladium and sell platinum

Palladium and platinum, two “cousin” metals and both part of the platinum-group metals (PGMs) on the periodic table, are used in catalytic converters and other industrial applications. Palladium is trading around $2,670 an ounce, with platinum on $1,177 an ounce.

Analysts at Citi think palladium could hit $3,000 by the third quarter of this year, says Jack Denton in Barron’s. A surge in catalytic-converter demand as many countries tighten emissions standards should lead to a sizeable global deficit in the metal this year and next. Russian producer Nornickel says problems at two of its Siberian mines will mean 15% to 20% lower production of PGMs than planned this year. Russia is the world’s largest producer of palladium and the second in platinum after South Africa.

The two metals are set to trade in opposite directions, says Adam Hoyes for Capital Economics. Platinum is used more intensively in diesel catalytic converters, but demand for diesel vehicles is falling as Europe has shifted towards petrol cars, which use more palladium. While palladium is essentially an industrial metal, platinum is also affected by investment demand, which may be about to fall back on rising US bond yields. Hoyes thinks palladium will hit $2,800/oz by the end of next year, but reckons platinum will fall to $800/oz by then.