South Africa has played a significant role in the development of the platinum market. Much of the world’s platinum comes from this region. In fact, 70 percent of the world’s platinum originates from South Africa, but Russia is also a major supplier of this precious metal as well, which must be why the two countries announced a union earlier to expand the platinum market. Investing in platinum is a solid investment as much of the reports indicate that the market is in demand and steadily rising according to Bloomberg. These increases have led many investors to see a new territory with platinum. The following is a rundown on how you can invest in platinum as well.
History of Platinum Investing
Traditionally platinum has a value equal to twice that of gold. It’s extremely rare and a little difficult to mine, which is why it has such a high demand. In 2008, platinum reached $2,250 per ounce and has steadily remained the highest valued precious metal per ounce. As the economy has brought down the prices of precious metals, it’s still valued at an average $1,500 per ounce.
1. Why You Should Invest in Platinum
Many investors today are losing faith in the gold market and want an alternative to the US dollar. This alone has increased the demand for platinum dramatically. Much of this metal’s success is also dependent on the automobile industry. As precious metals are mined in multiple developing countries, there are various market spikes that investors can take advantage of. There are a number of ways to invest in platinum including futures or simply purchasing the physical metal in the form of bars and coins.
2. Invest with Exchange Traded Funds (ETFs)
ETFs are one of the most popular ways to invest in platinum. This way decreases the amount of expenses while also getting rid of certain challenges that come with storing physical bars and coins. Investors are mostly choosing ETF Securities Physical Platinum Shares (PPLT). The bars are then held in secure vaults across Europe. You could also invest through iPath DJ-UBS Platinum ETN (PGM). This method was created in 2008 and tracks Dow Jones-UBS Platinum Total Return Sub-Index. This shows the returns in platinum futures contracts and interest that can be earned on cash collateral when invested through T-Bills.
Another option is through E-TRACS UBS Long Platinum ETN (PTM). This method was also started in 2008, but it tracks CMCI Platinum TR Index, which looks at the collateral returns from several platinum futures contracts. These commodity futures are focused for a total of three months.
3. Invest with Platinum Futures
You can also invest in platinum through futures on the CME, which uses the symbol PL. These are contracts that have sizes of 50 troy ounces each. They are priced in US dollars and cents calculated by troy ounce. Each trade ends on the third to the third last business day of a delivery month. The platinum has to have a purity of at least 99.95 percent. Trading continues over a period of 15 months.
4. Buying Physical Platinum
Other investors want to own the physical bars and coins for this precious metal. Not only does this method allow assets to move together with spot prices, you also remove the problems with futures contracts. Since platinum has a high value density ratio, you can inexpensively store a physical amount of platinum. However you also have to think about security when storing these items. Many companies sell different platinum coins and bullion while also offering secure storage options for a fee.
5. Investing with Platinum Stocks
Investors like to get started with platinum through stocks of companies that work with the extraction of the precious metal. These miner stocks usually relate to spot platinum and prices of platinum. There are a few different platinum mining companies to buy stock from including Stillwater Mining Company (SWC), Impala Platinum (JSE:IPA) and Anglo Platinum (AGPPY).
6. Understanding Challenges of Platinum Markets
Most of platinum’s demand comes from the automobile and jewelry production markets. As stated before, most of the world’s platinum is mined in South Africa, but there are also mining companies extracting platinum from Russia, which is the second largest supplier of the precious metal. However reports have shown that mining is slowing down in Russia.
In recent years there have been considerable labor issues in South Africa in regards to mining precious metals. Platinum is quite valuable because it’s so rare, but the labor challenges also cause breaks in the supply chain. For example, Anglo American Platinum is the largest platinum mining company in the world, but it had to stop operations for a day after labor violence in one of the mines. The issues with labor have caused significant changes in the market, but platinum has still steadily increased. The key for investors is to use a solid investment through ETFs, which are more cost-effective for buying and selling this precious resource.
7. Investing with Swiss Banks as Platinum Currency
You can open a Swiss bank account and trade in platinum like a currency. You can use this method to instantly buy and sell platinum just like it was another foreign currency. However you aren’t purchasing physical platinum with this method. You are purchasing a claim for a quantity of platinum.
8. Mistakes to Avoid When Investing in Platinum
When you begin investing in platinum, you may expect a windfall, but this is a long-term investment. Platinum has consistently proved that it is the most valuable precious metal, but the market does have lows and highs. If you expect a smooth ride, you may be disappointed. You also can’t time the platinum market like other markets. There are a variety of special factors including the labor conditions in South Africa that make these investments a bit of a challenge. If you believe that investing in platinum is too much of a risk, you may want to start out with a lower cost precious metal with a more stable market. That will also be key to diversifying your precious metal portfolio. If you manage your risk wisely, you can purchase small amounts of platinum and steadily increase your returns over time.
Few words better describe today’s platinum markets than uncertainty. Many investors are watching South Africa but also looking to the pact forming between mining companies in this region with those in Russia, which could increase the value of platinum dramatically. While sharp price fluctuations in platinum can be confusing, the investment is worthwhile in the long-term and has proven to be quite profitable.
Russia and South Africa Palladium OPEC source: http://www.zerohedge.com/news/2013-03-27/russia-and-south-africa-create-opec-‘platinum-cartel’
Platinum market rising: http://www.bloomberg.com/news/2013-03-26/russia-south-africa-seek-to-create-opec-style-platinum-bloc.html
Anglo American closures via Wall Street Journal: http://online.wsj.com/article/SB10001424127887324235104578243091562386844.html