Platinum, a precious metal, is used in the industrial and manufacturing markets, particularly in vehicle pollution control devices. As the global economy rebounds from the pandemic, platinum’s price is likely to rebound since it is used in manufacturing. It also has a future in the renewable energy market. As an investment, platinum may be useful in a variety of ways, including hedging and speculating. If you want to include platinum or any of the precious metals in your portfolio, it may be wise to speak with a financial advisor and keep up with the platinum market.
The Platinum Industry
Platinum belongs to a group of precious metals that also include palladium, iridium, ruthenium and osmium. Platinum ore is 30 times rarer than gold, and a platinum investment may be subject to more price volatility than gold or silver. Even though platinum is usually, but not always, more valuable than gold, much more gold has been mined than platinum. Between 50% and 60% of the world’s production of platinum and palladium is used in the automotive industry.
Platinum has more industrial and manufacturing applications than does either gold or silver. It is used in making catalytic converters as pollution control devices for automobiles. It is used in fuel cells and electric power generation since it is conductible. Platinum use in automobiles is increasing in the U.S. since the movement toward hybrid and electric vehicles, even though they do not require catalytic converters. This is because platinum is used in hydrogen fuel cell technology often called “green hydrogen.” The use of platinum is increasing in the Asia-Pacific automotive market since so many consumers do not own automobiles but may in growing economies in the future. China is the largest of those markets.
Platinum is very desirable in fine jewelry, especially in India and China. It is also used to make flutes. There is a market for it in medicine in the manufacture of stents and pacemakers. A platinum alloy is used to coat computer hard drives. Platinum is even used in medications to treat cancer and has applications for Parkinson’s Disease.
Approximately 75% of the world’s platinum is mined in South Africa. The second-largest platinum-producing country is Russia. Some platinum is mined in Canada and the U.S. in Montana. Zimbabwe has platinum mines. Platinum is often produced as a by-product of nickel mining. The amount of platinum mined is only a fraction of the gold that is mined.
How to Invest in Platinum
Platinum coins and bars are sold by several manufacturers. Since platinum is one of the heaviest metals, buying a quantity of bullion for delivery is simply not reasonable for most investors. A 6-inch cube of platinum weighs as much as an average size person. Although you would not need a large storage facility, you would need one that could withstand the weight. It is also not feasible to move very much platinum. Since platinum is so rare, this may not be a problem. However, since most platinum bullions are just promises on a piece of paper for delivery at some future date, this is often not a problem either.
Stocks, EFTs, EFNs
In order to make a direct investment in platinum, there is a platinum trust that is a possible platinum investment. Another possible investment is to invest in a platinum mining company. Platinum has a volatile spot price and the mining companies are not as vulnerable to rapid price changes. A platinum ETF would offer some minor diversification within the platinum market. There are also some EFNs, all traded in Europe.
Platinum options trade on the New York Metals Exchange. If options owners decide they don’t want to fulfill their contract, they can walk away and only lose the money they have already paid to purchase the contract. Options have a strike price and if the value of the option rises above that, options owners can exercise their option since they will be in the money.
Platinum futures are traded on the New York Metals Exchange and the Tokyo Commodity Exchange. Speculators like to take advantage of their short-term price volatility while hedgers try to offset risk. A platinum futures contract buyer agrees to take delivery of a specific quantity of platinum, at a specific price on an agreed-upon future date. Platinum futures traders should be advised of the above-average price volatility in the platinum market.
Risks and Benefits of Platinum Investing
Platinum investing comes with its share of risk. Mining the precious metal is expensive due to the capital requirements. It is often found when mining nickel. The price is more volatile than any other precious metal and often higher as well. But, some of the risks of platinum are due to its rareness. Only two countries, South Africa and Russia, own the vast mining operations and reserves of platinum. That could mean cartels could form, and given the constant labor disputes work stoppages and strikes in the South African mines, both factors that would put upward pressure on prices.
There are also not many platinum stocks or ETFs. However, there are futures and options contracts for platinum, but those carry the usual risks of such derivatives.
On the upside, some see platinum as a better investment in the near future than gold. Prices of silver and gold are surging since investors often flock to those two precious metals in uncertain economic times. The Federal Reserve has kept interest rates low and the money supply high, which weakens the dollar. Precious metals tend to do well under those circumstances.
The Bottom Line
Platinum can provide individual investors with diversification in their portfolio. Platinum is not a dependable counter-cyclical metal like gold. Sometimes it is counter-cyclical, but sometimes it is cyclical. It depends both on economic conditions and the current platinum mining environment. Since platinum is a commodity, it has the price volatility associated with the commodities market. It can serve as a hedge against inflation or an instrument for speculators. If you want to invest, there are a number of options ranging from physical platinum to the futures and options markets.
Tips for Investing
- Due to the risk associated with trading commodities like platinum, consider working with a financial advisor. Finding one doesn’t have to be hard. The SmartAsset financial advisor matching tool can connect you with several financial advisors in your area who can assist you with determining if platinum is a good investment for you given your investment goals, risk preferences and time horizon. It only takes a few minutes to connect with an advisor. If you’re ready, get started now.
- Use the free SmartAsset asset allocation calculator to see how an investment in platinum could affect your portfolio.
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