Platinum is an industrial metal ranging uses from industrial applications and manufacturing to health care and jewelry. The biggest driver for demand is the automotive industry – as it is used in catalytic converters, along with other metals like palladium – this makes up for roughly one-third of global demand in the past five years, according to the World Platinum Investment Council, or WPIC.
Platinum is also more rare and harder to mine than gold since it is found deeper within the Earth's core. This combination of short supply and broad demand historically shows for a lucrative investment opportunity, but investing in platinum is not for the timid. Here's what prospective commodity investors should keep in mind:
Platinum vs. Gold
"Investing in platinum is just like investing in any other precious metal such as gold, silver or copper," says Josh Simpson, financial advisor. "The difference between platinum and the others is that it is rarer." Platinum is about 30 times rarer than gold due to its low concentration in the Earth's crust, the WPIC reports.
The majority of platinum supply comes from South Africa and Russia. "Because so much of the supply comes from two countries, their political stability comes into play with the price of the metal as well," Simpson says. "The more stable their governments are, the lower the price."
He states platinum is more influenced by supply and demand than gold, which is amplified by fear. "When the dollar is weak it leads to a lower supply of platinum because it is normally purchased in U.S. dollars," Simpson says. "Weak supply leads to an increase in price."
This, along with its concentrated supply, are indicators to the benefits and risks to investing in platinum, depending on what is happening in the world, he says. For instance, in the fourth quarter of 2020, demand for platinum increased as the global economy began recovering from the pandemic. Meanwhile, platinum supply decreased due to an outage at one of the biggest plants stationed in South Africa. This caused the price of platinum to increase during the quarter, even as the price of gold slightly declined – a trend that continued into 2021 when the price of platinum was up by more than 21%.
Investing in Platinum
There are arguments out there in favor of placing money into platinum.
"Platinum prices are significantly more volatile than that of gold and silver, so investing in it is not for the faint of heart or inexperienced investors," Simpson says. "In shorter investment windows, three to five years, there can be wild swings in the price in both directions."
After skyrocketing between 2006 to mid-2008 when it outperformed gold by as much as 65%, the price of platinum plummeted just as quickly by more than 60% between May and December of 2008. It ended the year almost equal with gold in terms of price.
Given its price fluctuations, platinum may not be a long-term hold for most, Anspach says, so it's important to account for the potential tax impacts of a short-term gain. Short-term gains, which are from an investment you held for one year or less, are taxed at ordinary income rates rather than long-term rates.
Is Platinum a Good Investment?
As with any investment decision, choosing whether or not to invest in platinum is a personal consideration.
"To determine if platinum would be a good investment for you, do your research and speak with a financial professional who will give you an honest assessment of whether or not you should invest in platinum at this time," Simpson says. "Always speak with a fiduciary because they are legally and ethically bound to take your needs and concerns ahead of their own."
A fiduciary won't receive remuneration from the investments or products they sell, so you don't have to worry about them saying platinum is a good investment for you simply to line their own pocket.
Commodity investing is not for everyone. Whether it is precious metals or crops, it does not matter. The investor's experience level, risk tolerance, financial position and time horizon should determine whether it is a good investment," Simpson says. "Just because your buddy at work is invested in it, doesn't mean that it is right for you."
Are Precious Metals a Good Investment for You?
Precious metals offer unique inflationary protection—they have intrinsic value they carry no credit risk, and they cannot be inflated. That means you can't print more of them. They also offer genuine "upheaval insurance" against financial or political/military upheavals.
From an investment theory standpoint, precious metals also provide a low or negative correlation to other asset classes like stocks and bonds. This means even a small percentage of precious metals in a portfolio will reduce both volatility and risk.
Precious Metals Risks
Every investment comes with its own set of risks. Although they may come with a certain degree of security, there is always some risk that comes with investing in precious metals. Prices for metals can drop due to technical imbalances (more sellers than buyers). That said, during times of economic uncertainty, sellers benefit, as prices tend to shoot up.
The Final Word
Precious metals provide a useful and effective means of diversifying a portfolio. The trick to achieving success with them is to know your goals and risk profile before jumping in. The volatility of precious metals can be harnessed to accumulate wealth. Left unchecked, it can also lead to ruin.