One of the most beautiful precious metals traded today is platinum. It is found in even smaller quantities than gold and silver. However, it is commonly ignored in favor of other precious metals. This is also a very interesting investment asset because it is commonly used in industrial applications. It is also a vital component in motor vehicles. There are many different options for people to invest in platinum. This includes stock in businesses heavily involved in the sale and extraction of the metal. Other investment options include exchange traded-futures contracts and both futures-based and physically backed exchanged-traded products.
Uses and Physical Properties of Platinum
Platinum is a malleable and dense transition metal. It also belongs to the platinum group of constituents that are generally unreactive. It has certain physical attributes that make it very useful for industrial applications. It is highly resistant to corrosion even in extreme weather conditions. This makes it very appealing for use as a component in catalytic converters.
About half of the world’s supply of platinum is used for emission control devices for motor vehicles. Due to its catalyst attributes, it helps in the conversion of hydrocarbons from the car’s exhaust into water vapor and carbon dioxide. Electronics and jewelry also make significant use of platinum. At the same time, platinum is also being used in thermometers and certain dental applications.
Platinum Demand and Supply
Platinum is acquired as a byproduct of copper and nickel mining. It is also one of the rarest metals on earth. The annual production of platinum is smaller than silver and gold. At the same time, platinum represents a relatively tiny amount of physical metal.
South Africa is the world’s number one producer of platinum. The country accounted for nearly 75 percent of 2010 production. This nation also houses more than 95 percent of all known reserves. The meaningful concentration of this precious metal in that country has huge effects on pricing. Additionally, South Africa is an emerging market that has experienced many disruptions recently including mine strikes.
During the previous years, platinum’s relative scarcity has launched the development of technological processes to recycle this precious metal. According to the statistics gathered by the US Geological Survey, the amount of platinum group metal recovered from old and new scrap across the United States is estimated to be 26,000 kilograms.
Even though platinum is a valued metal like silver and gold, these elements do not often move in unison. This is due to the fact that industrial uses of this precious metal tend to do much better during economic booms. The metal frequently overshadows the price of gold and silver by several hundred dollars per ounce of platinum. Additionally, there are three other things that can affect the price of platinum on the worldwide market.
• Technological Developments
As motor vehicles continue to be state-of-the-art, platinum’s supply side has been subject to inquiries. An increase in the production of electric cars also means a reduced need for catalytic converters. This has a huge adverse impact on the need for platinum.
• Health of the Auto Industry
The automobile industry has a great need for platinum metals, and the price of this commodity can be greatly affected by this industrial sector’s economic situation. Greater car production also translates to stronger demand for this commodity. At the same time, low demand for automobiles cause a drop in platinum prices.
Some car manufacturers are using palladium instead of platinum for their vehicle production. This is due to the fact that palladium is much cheaper and easier to obtain. Historically, platinum was the only metal used to manufacture diesel catalytic converters. The invention of high tech equipment and state-of-the-art production methods has allowed an estimated 25 percent palladium to be utilized in these devices. New experiments have also raised the possibility that palladium use in the car industry could fall up to 50 percent in the coming years.
Investing in Platinum
Platinum is a very investable asset for many reasons. It is widely used in industrial applications. At the same time, it is considered as an investment alternative for silver and gold. It also offers an inflation hedge appeal and some safe haven as a precious metal. Additionally, it can benefit from a very strong consumer demand for commodities such as motor vehicles. There are several ways of purchasing platinum that include ETFs, physical exposure and futures.
• Platinum Futures
These investment assets are usually traded on the New York Mercantile Exchange. These futures have contracts priced in dollars per troy ounce. Platinum futures are available over 15 months. It starts with the current month and follows a two months calendar. After that, it moves into a quarterly cycle in April, July, October and January. Every platinum future has a contract size of 50 troy ounces. These futures are also subject to the New York Mercantile Exchange position limits.
• Physical Platinum
Because platinum shows a unique high value to weight proportion, it is feasible for investors looking for exposure to simply purchase platinum. This method has an advantage of reducing the nuances present in a futures-based strategy. However, buyers may also need secure storage arrangements. There are a number of platinum coin dealers that can be contacted on the phone or online.
There are also some ETFs whose other assets consist of platinum. These investments provide exposure to spot prices. At the same time, they also minimize storage expenses.
• Platinum ETF’s
There are several ETFs that provide exposure to platinum. This includes funds that are invested in physical platinum and platinum future contracts. The returns gained from these funds will be similar to short-term investments. However, certain ETFs may perform better for longer investments based on the futures curve’s slope. Platinum ETFs include E-Tracs Short Platinum ETN, E-Tracs Ling Platinum ETN, iPath UBS-Dow-Jones Platinum ETN and Physical Platinum Shares.
There are some ETFs whose holdings consist of shares from mining companies involved in platinum mining. An example of this is the First Trust Platinum ISE Miners Index Fund. This ETF invests 25 percent in global mining stocks that are heavily engaged in the platinum industry
• Platinum Miners
Investors can also achieve exposure to platinum by buying stocks in businesses that are involved in selling and extracting this precious metal. Like many corporations, the profitability of this asset is heavily dependent on the current market price for the commodities they sell. Due to this, mining companies tend to achieve high profits when prices are elevated. Mining stocks also tend to be traded as a leveraged play for the underlying platinum resource. This means that price movements are often more important than changes in this commodity over a short time period.
Future Outlook for the Platinum Industry
There is an optimistic outlook for the platinum market in the near future. Gold has had lots of attention as an investment asset, but platinum is much better for an investment portfolio. At the same time, they are also getting exposure to industrial growth and catalytic converters. This is the reason why there is real use for platinum. Additionally, the huge supply and demand mismatch could mean gold prices much lower than platinum prices. To find out more about how to invest in platinum go to Monex.com for more details.