Why invest in Platinum?
Gold and silver are two valuable metals that have been sought-after for many years. Fast-forward to the present-day, and precious metals are still coveted, having a comfortable position in many a savvy investor’s portfolio. Those who are looking to invest in precious metals are quick to seek out gold and silver first and foremost.
Those two metals are big names and can earn you a lot of money. However, there are plenty of others that are just valuable. One of them is platinum, the third most traded precious metal in the world. Often overlooked, this precious metal frequently comes with a high price tag. Surprisingly, this price tag is higher than that of gold and silver. The simplest explanation for how this is possible is that it is comparatively rarer than gold. Moreover, it is more challenging to extract.
Because it is an in-demand industrial metal, platinum is regarded as being an excellent choice to add to your portfolio of precious metal investments. This article will take a closer look at the price influences, how you can invest in it, and the risks to watch out for.
What influences platinum price?
Platinum, like gold and silver, experiences round-the-clock trading on global commodities markets. More often than not, it fetches a much higher price (per troy ounce) than gold usually does during routine periods of market and political stability. The main reason for this boils down to the fact that it is a rarer metal. In fact, far less of it is actually pulled from the ground on an annual basis.
There are assorted factors that tie into the determination of the price of platinum. This metal, not unlike silver and other precious metals that are often labeled as “industrial metals,” is open to many of the same factors that influence price fluctuations. It is true that platinum is a high-value precious metal, and it can also function as a store of value in a manner that is similar to gold. Be that as it may, it has more exposure to the laws of supply and demand as they normally apply.
The most common influencers of platinum’s price are the following:
- Demand in the auto industry: The car industry is where platinum experiences the largest amount of demand. The reason for this being that platinum is a key ingredient in catalytic converters. These devices are commonly used as a means to cut down on vehicle emissions on a worldwide scale. With this industry playing a huge role, it means that platinum’s price can move in tandem with the demand for brand new vehicles.
- Strength of currency: This point applies more to the USD rate against the Russian Ruble and South African Rand than anything else. This is mostly due to the majority of the world’s platinum coming from these two nations. Moreover, the metal is paid for with US Dollars. Consequently, a much weaker dollar will often remove a substantial amount of incentive from mining for platinum. This can result in a decrease in both the supply and the process, which in turn will lead to higher prices.
- Political stability: As previously mentioned, the vast majority of the world’s platinum supply is mined in South Africa and Russia; 75% to be exact. This basically means that both of the nations’ political situation – as well as their relations around the world, particularly with the US and China as they are two of the world’s major buyers – holds significance. Geopolitical issues, trade restrictions, or tariffs of any kind could have detrimental consequences on the price of platinum.
Ways to invest in platinum
For those who are interested in investing in platinum, there are a number of easy ways to do so:
In physical form: Physical platinum, meaning when it is in the form of coins and bars, is by far the most direct way to get involved in the market. Much like the other choices, it is distinctly trickier to purchase platinum, particularly with a diminished number of reputed suppliers in line with the metal’s rarity.
- Platinum stocks: This is a popular investment direction to go down. There are several platinum stocks you can invest in on the equities market through your broker. However, that does not mean that there is an abundance of them. For the most part, these are in the largest platinum mining and production operations, both of which are in South Africa and North America. A substantial amount of these mining companies may work with other metals. This may not sound too troublesome, but in actuality, it could put you in a vulnerable position even if platinum prices rise.
- Platinum ETFs: Platinum ETFs (exchange-traded funds) serve a similar purpose as to what they do in other areas of the market. They provide a wider range of exposure to the industry. Put simply, a platinum ETF is capable of being an investment concerning mining and production companies of platinum. The same can be said for other areas. Overall, this is the easiest way someone can invest in platinum. Even though each ETF is different, the risks are, in a way, hedged with an ETF. Moreover, they are liquid when it comes to getting in or leaving your position should the price wind up working against the investor. A lot of major brokers will tailor for a selection of platinum ETFs.
An additional investment method is participating in trading platinum futures and options. These are quite popular when it comes to trading commodities. However, for those who are new to investing, the comparatively less volatile methods listed above are the best route to take. This is especially true for a novice’s first time tackling precious metal trading.
Another way to invest in platinum is by investing in the cryptocurrency, Platinum Coin. This is an ERC-20 platinum-backed digital currency whose foundation is built on the Ethereum network. It is one of many stablecoins that is backed by precious metals. Based on the Ethereum blockchain, investors are able to store Platinum Coin on a wide variety of wallets that support ERC-20 coins.
Platinum Coin is a fractionalized crypto, meaning that investors of any budget are allowed to purchase any amount of platinum when purchasing the coin. This is an important feature largely because it democratizes platinum access. To emphasize this importance, remember that platinum is a metal with a traditionally high spot price. Investors with smaller budgets can procure the benefits that come from investing in bullion via Platinum Coin.
Unsurprisingly, when one invests in something as valuable as platinum, security becomes a top priority. Putting bullion into storage at home poses a serious risk of robbery or theft, especially since a majority of at-home safes are not secure enough. With Platinum Coin, holders can store their digital coins and take comfort because each is backed by an adequate amount of bullion reserves. As a matter of fact, these reserves are assessed by a third party.
Besides audits, the team behind Platinum Coin provides investors with access to a collection of their platinum reserves. Holders with other projects will have to wait on monthly or quarterly audits in order to receive a guarantee.
Platinum Coin allows investors to buy a cryptocurrency that is backed by platinum. This type of stablecoin provides holders with a hedge against inflation and preserves asset safety within turbulent markets. The usefulness and rarity of platinum make the coin a reliable investment, whether an investor holds digital coins or redeems them for bullion. Because Platinum Coin is a stablecoin, there will never come a time where it drops below the spot price of platinum. However, there are instances when the coin could potentially rise above spot when its popularity increases and/or it is heavily traded.
Supply and Demand
Platinum entertains a considerably wider application in the industry in comparison to gold. Therefore, its overall value relies heavily on the law of supply and demand as opposed to investor sentiments. Moreover, platinum’s value directly correlates to the performances of the wider economy. In times of stability concerning economic and political conditions, the industrial demand for platinum will skyrocket. Likewise, prices increase. However, in the cases of poor economic results, there is a decline in demand for vehicles, turbine engines, and heavy machinery. This, in turn, leads to platinum prices dropping.
As mentioned before, South Africa is the top platinum-producing country in the world, retaining the largest reserves of platinum-group metals. In 2019, the country would go on to generate 130,000 ounces of the precious metal, which is down only slightly from 137,000 ounces in 2018.
It is not uncommon for there to be production fluctuations from the top platinum-producing country over the years. In 2019, the World Platinum Investment Council (WPIC) predicted a 5% surge in demand courtesy of an increase in investor interest. That demand growth, however, did not happen. The significant increase in the price of platinum never came thanks to a supply surplus heading into the year.
With both supply and demand, Q3’20 saw large portions of the market returning to almost pre-COVID-19 operational levels. This was during a time when global economic conditions showed noticeable improvement in comparison to the first half of 2020. Platinum presented a strong Q3 2020 recovery as lockdowns gradually began to ease up. Supply levels were up 48%, and demand was up 75%, leading to the quarter in a shortfall of -709 Koz.
The first 2021 forecast illustrates that supply will be up 17%, and demand will increase by 2%. Furthermore, a third consecutive annual deficit is anticipated at -224 Koz. Intertwining with this is the prediction that the demand for Chinese jewelry will rise for the first time in seven years.
Risks of investing in platinum
As is the case with any other form of investment, there is the inherent risk connected to a downturn in the market. Because of this, it is wise for all investors to have protection in the form of a solid risk management strategy.
There is no doubt that platinum prices are substantially more volatile than that of gold or even silver. Volatility is par for the course when it comes to precious metals and cryptocurrency markets. While some investors do not mind this unpredictability, others are understandably not comfortable with it. This factor may be a dealbreaker as they are not suitable for all investors. Over the longer term, though, they have still showcased strong returns.
In shorter periods of roughly 3-5 years, platinum prices are prone to swinging repeatedly. This has many causes, one of which is a sharp decline in vehicle demand thanks to the COVID-19 pandemic. Despite the potential hazards, plenty of people interpret this as an ideal time to get value from the platinum market. The main reason for this mindset stems from the fact that platinum has – for now anyway – been temporarily displaced by gold regarding value. This is not unfounded as gold prices are reaching all-time highs.
An underrated gem
Gold and silver markets will certainly grab the headlines when it comes to trading in precious metals. No doubt they will continue to do so in the coming years. Nevertheless, it is important to keep in mind that a platinum investment is still relatively easy to accomplish. There are risks, and there are few pathways, but the rewards are too good to ignore.
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