Introduction to Platinum
Platinum is a precious metal that has been used for thousands of years, but it’s only recently become popular as an investment asset class. Platinum is one of the most expensive elements on Earth, with a current price per ounce of around $900 USD. It’s also one of the rarest metals on Earth, which also influences its value. The reason platinum is so expensive is because there isn’t much of it available. TIt has been increasingly difficult for platinum supply to meet global demand, according to the World Platinum Investment Council. In fact, the world produces about 1.5 million ounces of platinum each year, compared with annual consumption of around 30 million ounces.
Platinum is found naturally in soil, rock and water. The largest reserves are located in South Africa, where the Witwatersrand Basin contains some of the world’s richest platinum deposits, estimated at about 2 billion tons (2.3 trillion pounds) in total. But mining platinum can be difficult and dangerous: Roughly 80 people die in mining-related accidents every year. Platinum is often alloyed with other elements like gold or nickel to improve its durability and make it easier to mine. These alloys are called platinum group metals, or PGMs. All eight members of this group have similar physical properties – they’re soft, malleable and ductile.
PGM prices move more or less together, and when investors talk about them, they usually mean just platinum. This is the case because most of the rest of the platinum group metals are too small individually to matter to investors (with the exception of palladium). PGM prices have risen over the past decade, but they’ve come down since 2014. Prices fell after China imposed new tariffs on US goods, including aluminum and steel, in 2018. That led to fears of a trade war between the two countries. But the decline was short lived. Since then, platinum prices have started rising again, driven by strong economic growth in India and other emerging markets. Investors should note that platinum prices aren’t always correlated with those of other commodities. For example, oil prices rise and fall independently from the price of platinum.
Platinum as an investment
The price of platinum tends to follow trends in the economy and financial markets. When stocks are doing well, investors tend to buy bonds and other assets that pay higher rates of return. As bond yields drop, investors look for alternative investments that offer higher returns. And when the stock market does poorly or when there is great uncertainty about the economy, investors will often seek out safe havens like gold and silver. So if you want to invest in platinum, you need to keep track of what’s going on in the broader economy. You’ll also want to monitor how the price of platinum compares to other commodities.
How to invest in platinum?
There are many ways to invest in platinum, including buying shares in companies that produce the metal, owning platinum bullion, or purchasing platinum futures contracts.
One way to own platinum is through stock market investments. You could buy stocks in companies that extract platinum ore and refine the metal into jewelry or industrial products. You might want to look for companies that specialize in producing platinum group metals, such as Anglo American Platinum Ltd. (JSE: AMS), and Impala Platinum Holdings Ltd. (JSE: IMP). You could also choose to invest in the entire sector, which includes companies that don’t directly deal with platinum. Companies in this category include Barrick Gold Corp. (NYSE: GOLD), BHP Billiton Ltd. (ASX: BHP), and Rio Tinto Group (ASX: RIO).
Another common way to invest in platinum is through exchange traded funds, such as the iShares MSCI Global Metals & Mining Producers ETF, which tracks the performance of companies involved in production and extraction of precious metals including platinum, palladium and rhodium.
Another option is to invest in platinum futures. Futures allow you to speculate on future prices without actually having to take ownership of the metal. Platinum futures contracts are traded on exchanges around the world. The most active exchange is the London Metal Exchange, where platinum is traded under the symbol PGM. Like shares, futures give you exposure to the whole platinum industry. But unlike shares, futures can be used to profit even if platinum prices decline.
Another way to invest in platinum is to purchase physical platinum bullion. Bullion is the unalloyed form of the metal, meaning it doesn’t contain any other added metals and is at least 99.5% pure. The main advantage of holding physical platinum is diversification. If you hold a basket of different precious metals, you reduce your risk if one particular metal declines in value. Physical platinum bullion is also more liquid than shares, making it easier to sell if you need cash quickly.
Factors to keep in mind
When choosing platinum bars for investment, there are several factors to keep in mind. These include:
• Rarity – Is the bar from a limited edition collection of some sort?
• Purity – Does the bar meet your requirements for purity?
• Price – What does the metal cost today per ounce or gram?
• Supply/demand balance – Are there enough buyers and sellers?
• Physical condition – Is the bar in good condition?
• Certification – Does the bar carry an official stamp of approval certifying its purity and authenticity?
• Reputation – Who has certified the bar? Does the seller have a good reputation?
• History – Has the company been involved in previous scandals?
• Transparency – Can you find out how much the company paid for the metal?
• Location – Where did the metal come from?
• Transit Cost – How much will it cost to ship the metal to you?
• Delivery time – When can you expect delivery?
• Shipping options – Will you have options such as delivery speed and insurance when having the metal shipped to you?
• Storage – Do you plan to store the metal yourself? Or will someone else handle storage?
• Warranty – Will you receive a warranty on the metal?
• Customer service – Can you reach customer service representatives easily by phone or other methods?
Investing in platinum bars comes with some advantages
• Liquidity – Because platinum is so widely used, you should be able to sell the metal fairly easily through various avenues such as precious metals dealers and exchanges.
• Diversification – Holding a basket of different precious metal bars (and coins) gives you some protection against price fluctuations.
• Investment potential – Because platinum is so popular with investors and sought after for industrial uses (from dentistry and electronics to medicine and aerospace), demand for it has been high. As a result, the metal has tended to rise in value over time.
• Stability – Platinum is often considered a relatively safe investment because it’s not prone to wild price swings like other investments often exhibit.
• Portability – Platinum bars come as discrete, small units, making them easy to transport.
• Easy to store – Platinum is very stable and doesn’t tarnish as easily as other precious metals.
• Low maintenance – You don’t need to worry about cleaning or polishing the metal as often as other precious metals.
• Durable – Platinum is resistant to corrosion and oxidation.
Investing in platinum can be an excellent way to add diversity to your portfolio. There are several options available to you, from shares to futures to holding the physical metal. All three have their advantages and disadvantages. Shares offer diversification but require time to build up a position. Futures provide liquidity, but they’re not always easy to trade. Owning the physical metal can mean you have a wide variety of options under more of your immediate control and at your disposal, and as such we believe is worth considering.
Disclaimer: This page is intended for informational purposes only. It should not be considered as investment or financial advice. You should speak to a certified financial professional prior to any investment to determine the best investments and investment mix for your specific goals and situation.