Platinum investing refers to the act of allocating funds or resources into assets related to platinum, a precious metal. Investors may choose to buy physical platinum, invest in platinum mining companies, or use financial instruments like platinum exchange-traded funds (ETFs) to gain exposure to the metal’s price movements. Platinum investing can be seen as a means to diversify a portfolio, hedge against inflation, or take advantage of potential growth opportunities in the platinum market.
Understanding Platinum
- Reasons to Invest in Platinum
- Buying Platinum Bars and Coins
- Platinum Futures
- Platinum Contracts for Difference
- Platinum Exchange Traded Funds
- Platinum vs. Gold
- Issues with Platinum Longer Term
- Issues with Platinum as a Hedge
- The Need for Timing with Platinum
- Trading Platinum in Both Directions
Platinum Is An Extremely Rare Precious Metal
Platinum is an exceptionally rare metal, significantly scarcer than gold or silver and second only to palladium among precious metals traded as commodities.
The name “platinum” originates from the Spanish term “platina,” meaning “little silver,” due to its appearance resembling silver. Its scarcity is evident in the fact that only around 130 tons are produced annually, an amount that could comfortably fit into an average living room.
Unlike gold, platinum is not primarily held as a store of value. Its main usage lies in industrial applications, driven by the relatively higher demand for non-investment purposes compared to its annual supply.
Over 50% of the platinum mined each year is consumed by various industries. This demand takes precedence over its use in investment or jewelry. While jewelry does claim a significant portion of the remaining supply, there is relatively little left for investment purposes, particularly in bullion form, given the already limited starting amount.
The scarcity of platinum prevents it from becoming a major investment vehicle like gold and silver. People tend to buy and accumulate gold and silver as speculative investments or hedges against other assets. While platinum serves as an investment metal to a lesser degree, it is available in bullion form, similar to gold and silver, albeit in smaller quantities.
Platinum generally trades below the price of gold but remains firmly in second place overall, ahead of palladium and significantly ahead of silver. In 2008, during the early stages of the great recession, platinum briefly surpassed the $2000 an ounce mark, indicating its role as an alternative investment to securities during bear markets.
During stock market downturns, investors shift away from stocks, leading to a rise in cash positions. However, investors still seek positive returns, and precious metals, including platinum, become more attractive investment options during such times. Increased demand during these periods drives upward price movements, creating a self-fulfilling cycle, which is a common phenomenon in investment markets. All investments are influenced by changes in demand; rising demand pushes prices up, while waning demand leads to price declines.
Trading In Platinum
Platinum, being a commodity, is standardized, meaning that one ounce of platinum traded is interchangeable with another, making it replaceable. As a result, platinum is actively traded on both the spot market and the futures market.
The futures market for platinum holds significant importance, just like with most other commodities. Generally, traders and investors in the commodities market do not seek to physically possess the commodities they trade. Instead, they engage in speculation on the future price movements, a possibility that is available exclusively in the futures market.
For example, an investor interested in trading pork bellies would not necessarily want to own actual pork bellies for immediate delivery. Instead, they might trade in futures contracts or options on future contracts for pork bellies. By doing so, they aim to sell their position before the delivery date, making a profit from the appreciation of the contract’s value while holding it.
While precious metals also see speculative activity in the futures market, there are some differences. Some investors do hold precious metals over time and may acquire them through the spot market, particularly in the case of gold. Gold has significant demand in both the industrial sector and as an investment, with a portion used for jewelry making and retained as bullion for investment purposes.
On the other hand, platinum’s primary use lies in industrial processes, such as in making catalytic converters to reduce automobile pollution. Platinum is more akin to pork bellies in this regard, driven primarily by industrial demand, and businesses may hedge against future price increases by using futures contracts.
In the case of platinum futures, investors are often more passive participants, as they are along for the ride rather than seeking to exercise contracts like with pork bellies. Most of the time, futures contracts are exercised by end-users who require the precious metal for industrial purposes or business inputs.
The Platinum Market and the Outlook for Platinum
One can purchase platinum coins or bars, and due to the unique characteristics of the platinum market, its rarity compared to its price, platinum may actually be a better long-term investment than gold, and this can be understood with a modest understanding of economics.
The price of a commodity is influenced by both supply and demand, and precious metals are largely driven by demand. For instance, the price of gold tends to rise during times of economic recession and decline during periods of economic expansion, as demand fluctuates.
However, supply also plays a role, and while it does not have a significant impact on gold due to the vast amount of gold already in the market, it’s a different story with platinum. The limited supply of platinum relative to its demand, combined with the higher cost of mining platinum, should naturally cause platinum prices to rise over time.
Even without the influence of investors, platinum should be priced higher than gold based on its much smaller supply, which is expected to dwindle further. Platinum is not only rarer than gold but is also projected to become even more scarce relative to gold over time.
Industrial demand for platinum, particularly in the automotive industry for catalytic converters, is increasing as more cars are being produced. This growing demand should fuel higher prices, which will likely attract more interest from investors looking to acquire platinum coins and bullion. Demand for platinum as jewelry may also rise over time as it gains popularity.
Many platinum mines have closed down recently due to increased costs, and their potential re-opening will likely require a significant price increase in platinum. This decreased supply in itself exerts upward pressure on prices.
Furthermore, some large institutional investors are seeking to acquire more platinum as a hedge against their stock positions. Given the limited supply of platinum, even a modest accumulation by these investors can drive the price considerably higher.
Therefore, for investors looking to hold a precious metal long term, platinum appears to be an even better choice than gold, despite gold’s higher liquidity, making it easier to sell. The platinum market is still significant enough to allow for relatively smooth buying and selling transactions.
Other Ways To Invest in Platinum
Futures and options provide a means to profit from short-term price movements in platinum, whether they go up or down, without the need to physically possess the precious metal. Alternatively, investors can opt for purchasing platinum coins or bars to capitalize on potential longer-term appreciation.
Investing in platinum ETFs is another option, with several available in the market that focus on platinum, investing in both derivative contracts and physical platinum. As the popularity of platinum ETFs grows, it is likely to contribute to driving the price of platinum even higher.
Platinum ETFs allow traders to take positions on both the long and short side, offering opportunities for profits even during price pullbacks. Precious metals, including platinum, tend to exhibit significant volatility, and this volatility may intensify in the future as platinum gains popularity as an alternative investment.
Various platinum ETFs follow different strategies, with some investing solely in platinum bullion, some exclusively in the platinum futures market, and others using a combination of both. Although these ETFs are relatively small compared to others, they are gradually gaining traction, making them easily accessible to small investors for buying and selling.
While the saying “all that glitters is not gold” holds true, platinum certainly has its own shining allure. In fact, the appeal of platinum may soon surpass that of gold itself, as more and more investors recognize its potential as a valuable and glittering investment option.
FAQs
How Do You Invest in Platinum?
You can buy platinum from a precious metals dealer, where you can either have the platinum shipped to you, kept in their vaults for safekeeping, or they may just promise to provide your platinum to you out of their stock or by purchasing it later. You can also buy shares in a platinum ETF which will also allow you to speculate on platinum’s price declining.
Does Platinum Have Resale Value?
Platinum is traded both in markets and retail settings, and individual investors typically buy and sell retail platinum unless they invest in a platinum ETF; regardless of the approach, there will be buy and sell prices for platinum determined by the current demand, allowing for selling at the offered price.
Is Platinum a Good Investment?
Investing in platinum or other precious metals may not be suitable for long-term holding and expecting substantial rises similar to stocks; however, if purchased at the right time when an upward trend is anticipated, holding platinum can be profitable, but strategic timing is crucial.
What’s Better Platinum or Palladium?
When considering speculative investments, the superiority of one over another often hinges on their current performance and expected future performance. For instance, if platinum is experiencing an upward trend while palladium remains stagnant, platinum would be the more favorable investment at that moment, but these factors can vary depending on market conditions.
What Is a Platinum Etf?
A platinum ETF is a collective investment fund that combines investors’ money to purchase platinum; by buying shares in the fund, investors own a proportionate amount of the fund’s platinum resources, and these shares can also be shorted. Additionally, there is an option to invest in an inverse platinum ETF, where the share prices move in the opposite direction to the price of platinum.
Is Platinum Better Investment than Gold?
A larger number of people tend to speculate on gold compared to platinum, leading to gold generally having a more stable price compared to platinum, although market conditions can always vary for each metal at any given time. As a result, there are instances where platinum proves to be a better investment, while at other times, holding gold may offer more favorable outcomes, making it crucial to closely observe and make informed decisions based on the prevailing market conditions.
Why Is Platinum Cheaper than Gold?
Prices of commodities are determined by the interplay of supply and demand. In the case of platinum, its rarity compared to gold results in a lower supply, which could theoretically drive the price higher. However, the higher demand for gold relative to platinum generally leads to gold trading at a higher price than platinum. Supply and demand dynamics play a crucial role in shaping the prices of precious metals like platinum and gold.
Is Platinum a Commodity?
Investment-grade platinum is standardized to a high level of purity and comes in various standardized weights, making it a commodity. The uniformity of platinum bars or coins enables them to be interchangeable, eliminating the need for individual grading since they all adhere to the same quality standard. This standardization ensures that investment-grade platinum can be easily traded and exchanged without any additional grading process, as a single grade is applied to all units.
What Is so Special about Platinum?
Platinum’s unique allure lies in its exceptional rarity, being 30 times scarcer than gold. Although rarity alone might not be considered desirable, it is the combination of platinum’s scarcity, its intrinsic beauty, and its numerous industrial applications that contribute to its popularity and justify its valuation at over $15,000 per pound. The rarity of platinum sets it apart and adds to its value, making it a sought-after precious metal in various sectors.
How Can You Tell the Difference Between Silver and Platinum?
Platinum exhibits a slightly whiter color compared to silver, and although the distinction is subtle, it can be discerned by those with a trained eye. Additionally, silver is more prone to tarnishing over time. The significantly higher cost of platinum items can also serve as an indicator of their composition. To ensure accuracy and confirmation, the most reliable approach is to have the metal examined by a professional to definitively determine whether it is platinum or silver.
