When people think of precious metals investing, the two big trades that come to mind are gold and silver, the two metals commonly featured on nightly commodities news reports. Less attention is paid to platinum. But, investors with an eye toward diversification know that platinum offers a different type of play than gold and silver. Platinum trades more heavily as a resource utilized by industry. It also is more likely to move upward against political trends that favor liberal governments. Consequently, platinum provides a greater level of stability, historically, along with a slightly different trend in terms of reactions to global politics and economics.
Why invest in platinum?
Platinum trades somewhat differently than gold. Where gold often trades stronger during times of economic uncertainty, platinum tends to suffer. The trade-off is that, due to the demand-sided aspect of platinum’s role in several industries, platinum often trades higher during periods of global economic strength. From an investing standpoint, this is beneficial, because it gives commodities traders a place to flee as the economy heats up and gold prices collapse through multiple support levels.
The politics that drive the price of platinum also tend to run counter to the politics that propel gold prices higher. Gold prices are drive upward by conservative political undercurrents, particularly opposition to loose monetary policies. Inflationary, pro-growth policies, on the other hand, drive platinum. While there is some overlap in those two trends, the gold trend tends to be driven by irrational political elements into bubbles. Platinum, by contrast, tends to benefit from more rational sources of demand.
The effect of these two trends is that when the world economy swings from recession into expansion, platinum becomes a place where investors can retreat to quality. Platinum also is a place where investors can retreat from the bubble economics of gold speculation. The stability of industrial demand for platinum, along with fewer irrational politically driven bubbles, makes the metal an interesting hedge against downward swings in the market for gold.
How to invest in platinum
Platinum trading takes place in two real world markets, the New York Mercantile Exchange, commonly called the Nymex, and the London Platinum and Palladium Market. For the average small investor, there’s a better way to trade. Monex provides online tools that let you buy and sell platinum, along with other forms commodities, such as gold, bullion, coins, palladium and other precious metals. Monex also provides a platform that allows you to monitor trends, charts and analysis on an on-going basis. The interface makes it easy for beginning investors to start trading right away.
Traders can also find platinum available through exchange-traded funds. Swiss bank account holders can invest in platinum through platinum accounts that entitle them to claims against certain amounts of the metal. However, most small investors will prefer to utilize online trading platforms, such a Monex, in order to have access to the simplest and fasted method available for trading platinum.
Industrial uses for platinum
The demand for platinum arises particularly from its use by the automobile manufacturing industry. Platinum is used in catalytic converters, a key element in the pollution controls required for most vehicle exhaust systems throughout the modernized world. As emerging economies begin to adopt stricter pollution standards, platinum demand is poised to rise. This can make platinum an interesting way to play the rise of progressive political regimes, a trend that generally depresses metals commodities markets.
Platinum also has a number of uses in many scientific and medical applications. It is used in dentistry, chemotherapy, electrical contacts and laboratory equipment. These additional uses help provide additional demand support for platinum, even in depressed economies.
Platinum also has some uses in the jewelry market. Along with palladium, it is a popular material to use in the role of so-called white silver. Demand arising from these uses, however, pales in comparison to the industrial demand for platinum.
There is also speculation about new platinum demand arising from markets for hydrogen fuel cells. Platinum can be a very effective catalyzer for the process. However, the market for the technology is far from proven. Therefore, platinum should not generally be treated as an alternative energy hedge. However, investors are encouraged to keep an eye on developments in the fuel cell market, should it emerge as a new source for industrial platinum demand. Likewise, certain battery technology uses for platinum may offer new support in the coming decade.
Global platinum mining capacity is expect to top 310,000 kilograms worldwide, by 2015. This represents less than one-sixth the annual global production of gold. Most global platinum mining capacity is located in Russia and southern Africa, especially Zimbabwe and South Africa. Mining strikes in South Africa in recent years of held back global platinum output. As those labor woes recede, production is expected to increase.
The bulk of the world’s industrial platinum demand goes to the United States. In 2010, the U.S. imported 94% of the world’s platinum. However, some of this is due to the heavier industrial use of palladium for similar purposes in other automobile manufacturing countries. Also, Canada’s auto industry keeps a fair amount of that countries platinum output in internal markets.
Platinum’s nastiest swings have tended to occur from rapid demand erosion during the early months of recessions. For example, platinum hit a record high of $2,252 per troy ounce in March of 2008. In term of global economic history, that was the exact month that the global financial crisis began to unravel with the implosion of Lehman Brothers. As the global economy fell into recession, the automobile makers, especially in the United States, began imploding, too. Between the destruction of investor demand and the nearly complete eradication of automotive industrial demand, platinum plummeted. By September, as government reactions to the recession ramped up, platinum fell all the way to $1,595 per troy ounce.
Relationship to palladium
Platinum and palladium track fairly closely in global markets. Both metals are heavily used in catalytic converters. Both are used in jewelry in the form of “white silver.” Both metals are mined in similar quantities. Investor awareness of platinum is slightly higher. Also, while platinum is far less popular than gold and silver for use in coinage, government mints do like to issue platinum bullion for the specific purpose of attracting investor interest. Generally, there is no interest in palladium coinage or bullion.
While platinum and palladium trade very closely, the general historic trend has been for platinum demand to slightly depress the price of palladium. This has served to anchor platinum’s place as the third sister to gold and silver. However, with increasing global auto production and changing pollution standards in countries where palladium is more favored, investors are advised to watch whether that relationship breaks down in the next decade.