Platinum is much scarcer than either gold or silver. Consequently, its price tends to run significantly higher than these two metals during periods of economic stability. In periods of uncertainty, the price can fall below that of gold due to its relatively elastic demand. The main driver of its price is demand, as mine production is markedly lower than other precious metals.
Like gold and silver, platinum is traded via a variety of investment vehicles. Investors can own physical platinum, usually in the form of coins, platinum ETF shares, platinum accounts, and shares of platinum mine stock. Aside from its desirability as an investment asset, platinum demand stems from its use in industry and fine jewelry. Auto makers increasingly demand platinum for its use in suppressing carbon emissions. As legislation in the developed world continues to impose emissions criteria on the auto industry, industrial demand is likely to rise.
As with all precious metals, platinum serves as a hedge against fiat currency inflation. Due to its scarcity and greater demand sensitivity, however, gold and silver remain the standard commodity safe havens when central banks print money. Unlike gold and silver, platinum production is more heavily concentrated in emerging markets, making occasional supply side price spikes more frequent than for other metals. In February of 2013, platinum reached a 16 month high after political events in platinum exporting South Africa drew down global supply.
This temporary price spike gave way to lower prices as exports resumed. While this case is illustrative of the volatility of platinum, investors concerned about similar supply shocks should note that the supply side will generally tend to temporarily raise the price of the metal rather than lower its price. Despite the expected fall in prices back to trend line level after the South African supply returned to world markets, several hedge funds are betting that the price will continue to rise over time. This is in large part due to expected steady growth of industrial demand in developed countries and demand for platinum jewelry in emerging markets.
Investors considering investing in platinum should weigh its strengths and weaknesses against alternative precious metals. Its role as hedge against market risk appears to be less robust compared to gold and silver during times of economic uncertainty. In the aftermath of the 2008 financial crisis, the price of platinum fell dramatically before beginning a multi-year rise correlated with the steady rise in the price of gold. As a check on fiat currency inflation, platinum is fairly reliable, although relative to gold, its price may be held down by the stagnant recovery.
In addition to considering platinum as an alternative to traditional precious metals, investors may also consider investing in platinum for the qualities it does not share with gold or silver. As noted, its supply and demand dynamics are different than those of alternative precious metals. Many fund managers and market analysts expect its price correlation with gold to be a temporary phenomenon, set to dissolve as the global economy begins to recover in earnest. These analysts expect that the price of platinum will once again rise well above that of gold, making its existing low price a potentially lucrative opportunity for significant returns.
Those who are interested in further exploring the opportunities that platinum offers investors should talk to an experienced financial consultant about risk, potential return, and the best means of investing in the commodity. AVC Advisory’s financial consultants offer expert advice and help investors tailor their investments to match their clients’ personal financial goals.
