Platinum is one of the most valuable precious metals, renowned for its extreme rarity and wide range of industrial applications. Its high value, scarcity, and triple threat characteristics as a precious metal, industrial metal, and eco-friendly metal make platinum an attractive investment option for anyone looking to diversify their portfolio.
What is platinum?
Platinum is one of the rarest precious metals in the world, thirty times rarer than gold. It belongs to a group of metals called the platinum group metals (PGM), which includes ruthenium, iridium, osmium, and palladium.
This precious metal is so rare that all the platinum mined to date could probably fit in your home. This rarity makes it an excellent investment option for those who want to diversify their portfolios with precious metals.
About 90% of the world's platinum is mined in South Africa. Russia produces about 8%, and the rest comes from Zimbabwe, Canada, and Montana in the United States. More than half of the world's platinum production is used in the automotive industry.
What is platinum used for?
Platinum has more industrial and manufacturing uses than gold and silver. Its durability makes it useful in a wide range of industries, including automotive, medical, jewelry, technology, oil, and green energy.
Here's how platinum is used in different industries:
· Jewelry: Platinum's durability and shine make it an excellent choice of material for fine jewelry that is worn every day. Its use in jewelry is especially popular in China, the US, and India.
· Medicines: Platinum has a wide range of uses in the medical industry, as it is used to manufacture pacemakers and stents, as well as in some cancer drugs. It also has applications in the treatment of Parkinson's disease.
· Computers: Platinum alloys are used to coat computer hard drives.
· Green energy: More recently, platinum has been used in hydrogen fuel cell technology (also called green hydrogen) and in electricity generation.
· Automotive: Platinum is mainly used in the automotive industry to manufacture catalytic converters, which help reduce pollution from gasoline and diesel engines. As more companies move toward hybrid and electric vehicles, the use of platinum in the automotive industry is likely to increase.
How is the price of platinum set?
Like other precious metals, platinum is quoted in US dollars per troy ounce, with British pounds and euros also used for settlement. The price of platinum is set by the London Bullion Market Association (LBMA) and administered by the London Metal Exchange (LME).
When researching platinum prices, you will find two different types:
1. Spot price: This is the current market price of platinum, which is typically displayed “live” and updated every few minutes to show how much you can buy and sell platinum bullion at that moment.
2. Fixed price: This price is generally reserved for large orders of platinum, based on a price agreed upon by the London Metal Exchange.
What affects the price of platinum?
Before deciding to invest in platinum, it is important to understand what factors can affect its price. Like other metals, platinum can be volatile and experience significant fluctuations in price.
The main factors affecting the price of platinum are:
· South Africa: Because most of the world's platinum is mined in South Africa, its spot price can be affected by major events such as strikes in South African platinum mines or economic or political instability.
· Automotive industry: More than a third of platinum goes to the automotive industry. As a result, any significant changes in the automotive industry (such as people buying more or fewer cars) can affect platinum prices. If the automotive industry is performing well, platinum prices are likely to rise, and vice versa.
· US dollar: In some cases, when the US dollar loses value, it can affect the price of platinum. For example, if the US dollar depreciates against the South African rand, the profit margins of platinum mining companies will decrease. This can reduce the global supply of platinum and, as a result, affect its price.
Investor demand: Like any other asset, the price of platinum can be influenced by investor demand. If more people buy platinum, its price will generally increase. If investors sell their platinum holdings, its price will plummet.
If you plan to invest in platinum, it is useful to monitor these factors to better predict upcoming movements in its price.
Different ways to invest in platinum:
As with gold, silver, and other precious metals, there are different ways to invest in platinum. These include purchasing physical platinum bullion, as well as ETFs and stocks. Below, we describe each of these options.
Buying physical platinum:
In our opinion, investing in physical platinum is the best option. You can do this by purchasing platinum in the form of coins and platinum bars. Like gold and silver, you can buy platinum bars in different weights and price ranges to suit investors of all budgets.
Platinum bars can be purchased through trusted precious metal dealers such as StoneX Bullion. If you decide to buy physical platinum, be aware of the difference between bars and coins. In some cases, collectible coins, such as the 1 oz Charles III Britannia platinum coin, may offer more value than the spot price of platinum due to their rarity and historical significance.
Buying platinum ETFs:
Platinum exchange-traded funds (ETFs) are a way to invest in platinum without owning the physical metal. They work similarly to gold and silver ETFs. Essentially, you would be investing in securities backed by platinum.
The main benefit of investing in platinum ETFs rather than investing in the physical metal is that you pool your funds with those of other investors, which could offer greater exposure to the asset. On the other hand, you do not own the metal itself and lose the benefits of owning a tangible asset. Platinum ETFs may also involve additional expenses, such as fund management, administration, and marketing costs.
Buying platinum stocks:
The third option is to invest in platinum stocks, which are shares in companies that mine, process, or use platinum. Like buying ETFs, buying platinum stocks allows investors to enter the platinum market without having to buy and store physical platinum.
Platinum stocks are typically traded on stock exchanges, but it is important to note that there are fewer platinum stocks than gold stocks. Some platinum mining companies may also work with other precious metals, so it is essential to carefully research a company's operations before investing.
Pros and cons of investing in platinum
Advantages of investing in platinum:
1. Portfolio diversification: Like other precious metals, platinum has a low correlation with other asset classes, such as stocks and bonds, making it a good portfolio diversifier.
2. Inflation hedge: Platinum tends to hold its value over time, making it an excellent hedge against inflation.
3. Industrial uses: Because platinum is an essential industrial metal, it is likely to remain in demand.
4. Wealth preservation: The rarity of platinum makes it an excellent way to preserve your wealth, and its value is likely to increase over time.
Disadvantages of investing in platinum
1. Expensive price: Because platinum is rarer than other precious metals, its cost per troy ounce can be quite high.
2. Higher costs: Depending on the amount of platinum you purchase and where you intend to store it, the investment may involve additional costs, including insurance and storage fees.
3. No income: Unlike bonds and some stocks, physical platinum will not generate income for its investors.
4. Illiquid market: In some cases, the physical platinum market can be illiquid, which can make it difficult to buy or sell platinum.
Things to consider before investing in platinum:
There are a few things every investor should consider before starting to buy platinum. This will allow you to get the most out of your investment. Below, we outline some considerations before deciding to invest in platinum.
· Current market conditions
Before buying platinum, look at current market conditions and the factors described above that can affect the price of platinum. For example, you may want to research the current situation in South Africa, the automotive industry, and the current demand for platinum. This can help you determine if it is a good time to buy platinum.
· Different investment options
As noted above, there are different ways to invest in platinum. Consider each of these options carefully and evaluate their risks and costs. You may want to talk to a financial advisor for personalized guidance on which option is right for you.
· Risk management
Every investment requires a good risk management strategy, and that includes platinum. Be sure to diversify your portfolio when investing in precious metals and, ideally, do not devote more than 5-10% of your portfolio to these investments.
· Additional fees
Take note of any additional expenses that may be associated with buying, selling, and storing your platinum investments. These may include storage or insurance costs if you are buying bullion, or brokerage and management fees if you are choosing stocks or ETFs.
How to start investing in platinum
Are you ready to start investing in platinum? Here's how you can get started.
Step 1: Choose the type of platinum you want to invest in
Start by researching the different investment options, including platinum coins, platinum bullion, ETFs, or stocks. Understand the differences between them and consider how they align with your investment goals, risk tolerance, and liquidity requirements.
Step 2: Find a reputable dealer or broker
If you are buying physical platinum, be sure to choose a reputable online precious metals dealer who can guarantee the purity of their metals. It is always best to opt for a member of the London Bullion Market Association (LBMA) to ensure that the dealer is reputable and trustworthy. If you are buying ETFs or stocks, choose a reputable broker.
Step 3: Monitor your investments
Once you have your investments, monitor your portfolio and keep a close eye on the platinum market. Stay informed about the factors that influence the price of platinum so that you are prepared for price fluctuations and anything else that may affect the performance of your investments.
Tips and strategies for investing in platinum: To get the most out of your platinum investments, consider the following tips
1. Diversify your portfolio: Avoid investing all your money in platinum. Try to invest in a variety of different asset types to reduce risk and achieve a more stable return on your investment.
2. Consult an advisor: If you are unsure which platinum investment is best for you, talk to a financial advisor. They can help you find the best investment strategy for your situation.
3. Focus on the long term: As with other precious metals, it is essential to maintain a long-term perspective. Prices can be volatile in the short term, but you will generally see the value increase over the years.
4. Stay tuned to the market: Never stop keeping up with the latest trends, industry news, and platinum price movements. All of this will tell you when is the best time to buy and sell platinum.
By StoneX Bullion