As precious metals go, the gold standard as an investment vehicle is, well, gold. Silver runs a strong second. But rounding out this set of triplets is the oft overlooked platinum. This is probably because platinum is its own beast, unlike either of the other members of the precious metal family (no, we're not really counting palladium). It’s almost always more expensive than gold. Though, not to the degree one would expect given that there’s 16 times as much gold produced each year than platinum. It’s primarily used for various industrial purposes, meaning that its price drivers are primarily supply and demand, but it’s still traded as an investment device. Ultimately, platinum is a rare and unique metal that presents its own challenges to traders and investors alike.
Platinum mining is not a massive industry, due in no small part to how rare the metal is. Some estimate that the total amount of platinum that mankind will ever pull out of the ground as being able to fit into a single, 25-foot cube. The vast majority of the world’s platinum supply comes from either Russia or South Africa. As of 2009, the Russian Federation produced a little over 83,000 kilograms and South Africa produced a little over 75,000 kilograms with the United States coming in a distant third with just over 12,000 kilograms and no other country producing more than 6,500 kilograms.
All told, platinum production lags well behind the other two precious metals in production. Annual new mine production of platinum is only about 5 million troy ounces, compared to over 80 million ounces of gold and nearly 550 million ounces of silver. Anglo American Platinum (AGPPY) is the biggest platinum mining company in the world, producing almost 40 percent of the world’s platinum, with Impala Platinum Holdings Ltd. (IMPUY) and Lonmin Plc (LNMIY) among the other largest companies mining platinum.
Very little gold is used for anything other than investing. Silver has about half its supply committed to various industrial uses. Platinum, though, has the vast majority of its supply going to uses other than investing. And demand appears to be on the rise. The metal saw a 16 percent increase in demand in 2010 along, driven by a 48 percent increase in industrial demand. Most of this came from the increased use of catalytic converters (which use platinum) in cars and other vehicles for emissions control. The use of catalytic converters shot up 43 percent that year.
Another third of platinum is used in the production of jewelry. The metal’s a valuable catalyst in a variety of chemical reactions, and it’s used in a variety of products in the tech industry, including LCD monitors, hard disc drives, batteries, and electrodes.
As a result, platinum’s value tends to vary with the economic outlook. One prime example comes in 2008, when the price of platinum slumped as the stock market crashed the economic outlook got worse. After peaking at $2,252 a troy ounce in March of 2008, the price slumped all the way to $774 a troy ounce by November of that same year. However, as the economic outlook improved, platinum recovered, reaching $1,381 a troy ounce by market close on Tuesday.
Investing in platinum is, like silver, trickier than investing in gold in many ways. While technically a precious metal, and one that people use as an investment device, platinum’s price pressures are very different from gold because of the large portion of its global supply going into industrial uses. Platinum investors, like gold investors, need to watch global politics for signs of major changes. However, they also need to be up to date on platinum uses and the potential for changes in demand. That’s what led to gold briefly passing platinum in value last year despite having a radically higher supply.
However, one can also look at platinum’s industrial demand as a hedge against the sort of wild swings gold bugs have to sweat through. While the price of gold can fluctuate based on all sorts of perceptions about inflation and the global economy, and silver has historically been fairly volatile, platinum’s price is supported by very real industrial applications that could support its value even during wild market swings. Of course, when the global economy faces a major slowdown, as it did in 2008, the price can bottom out.
As far as means for investing in platinum, they're much the same as any other precious metal. There are ETFs tracking it as a commodity like the ETFS Physical Platinum Shares ($PPLT), and one could also go with the platinum mining ETF the First Trust ISE Glbl Pltnm Index Fund ($PLTM). And, of course, simply buying physical platinum or platinum futures is the most direct way to jump into the platinum game.
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