Platinum has been a sought-after precious metal since the time of the Egyptians, where Pharaohs were known to have been adorned in the metal along with gold and silver. But is it as interesting to own now as it was then? Is platinum a good investment? Let’s find out!
Why Investors Choose Precious Metals Over Other Assets
Investors commonly buy precious metals for a variety of reasons. The reasons range from the diversification of assets, hedging against uncertain times, to spotting a high return opportunity. These reasons for investing in the precious metals market are different from the traditional equities market most of us are familiar with. We’ll go into detail on the three top reasons why investors choose to invest in precious metals.
Hedge Against The Stock Market
Generally speaking, looking at the extended history of precious metals and stock markets, they are inversely related. This means that when the stock market goes up, precious metals go down, and when the stock market goes down, precious metals go up. This provides a great diversification factor for those who want to minimize their losses during a stock market plunge.
There are occasions where both classes of assets move up, and both move down. This phenomenon happened as recently as 2020, so this strategy is clearly not a perfect system. Also, each precious metal and the stock market have their own distinct relationship. The inverse factor may be greater for some rather than others.
Protection From Inflation
Precious metals have been reserve currencies for thousands of years, and though the dollar may not be connected to gold any longer, precious metals still act as reserve currencies around the world.
Precious metals have an intrinsic value. There is only a fixed amount of these in the world metals, and more can’t be made. Consequently, they are immune to inflation. As dollars decrease in value due to inflation, these metals will keep their same given intrinsic value. Therefore, the value of these metals will be worth more compared to dollars in the long run.
High ROI Opportunity
Like any other asset class, there are groups of investors looking to profit off the precious metal markets. They look for opportunities when metals become undervalued or are expecting a spike in demand.
Another common investing philosophy for precious metals is their use in manufacturing and jewelry production. As demand grows for goods produced from particular metals, investors assume that this will drive the price upward.
Is Platinum a Good Investment Vs. Other Precious Metals
Before we get to comparing Platinum against its peers, it’s important to know how Platinum is used. Its main uses include autocatalysts, jewelry, electrical & medical components, fuel cells, and other industrial applications. Depending on the demand of these applications and the supply that miners can produce, the price will shift.
The three most popular precious metals are Gold, Silver, and Platinum. Let’s take a look at how Platinum stacks up against these rivals.
Platinum Vs. Gold
Similar to Platinum, gold is used in jewelry and industrial applications. But unlike Platinum, Gold has a higher use in the financial world as a reserve currency, and is the most popular form of it. Gold’s use in jewelry and financial applications outweigh its industrial uses and drive the majority of the supply/demand.
As we can see on the chart above, Platinum outpaced Gold up until the 2008 financial crisis, and this is where Gold started to shine. Based on this data, I wouldn’t say gold is the better investment, just a star at a different time.
Don’t assume that because gold has done better recently, it will continue indefinitely. Demand for both metals will likely increase as time goes on. Study both the supply & demand factors before making your investment.
Platinum Vs. Silver
Since silver is more abundant, it is much less expensive than platinum. Silver has uses in a broad array of markets that range from batteries in the electronics sector to catalysts in the chemical sector. This makes silver more dependent on the overall economy as opposed to a few individual sectors like Platinum.
The important marker on the graph above is the black line. The lower this ratio is, the less valuable Platinum is compared to silver. A downward slope indicates that Silver is gaining value faster than Platinum and indicates a better asset performance.
Based on the graph above, silver would have been a better investment in the past 15 years, and Platinum before that. As with gold, this can’t determine the future, as there are various factors at play for this performance over the last 25 years.
Is Platinum a Good Investment Vs. The Stock Market
The returns that Platinum has had over the past 20 years versus the stock market aren’t really comparable.
Platinum has gained 145% since the year 2000, where the S&P 500 has gained 330% in the same timeframe. Though both have significant gains, the S&P has gained more than twice as much as Platinum has over the past two decades. This makes the stock market easily a better investment over this time.
Platinum has still yet to recover fully from the financial crisis of 2008, where the stock market has recovered and then some since then.
Platinum and other precious metals tend to do perform inversely from the stock market. Diversifying your portfolio across these asset classes will help avoid big portfolio swings, reduce risk and keep gains consistent.
Ways to Invest in Platinum
Similar to other precious metals, there are more ways than one to invest in Platinum. Besides the physical metal, there are a few other ways to invest in platinum. Let’s take a look at these below:
Physical Platinum
This is the most obvious and common way to invest in Platinum. Physical forms of platinum come in bars, coins, and jewelry. If you like to touch what you own, this is the way to go. Though there is a downside, it will be more difficult to sell your investment than other liquid assets. It will take some time, as well as added costs.
Platinum ETFs
ETFs offer a liquid way to invest in the physical metal. Platinum ETFs involve investing in a fund that physically holds the metal in a safe place. Owning a part of the fund means that you own a portion of the metal.
Holding a Platinum ETF has the benefits of investing in the physical metal without the hassle of lengthy and expensive transactions. Though take a look at expense ratios, a ratio that is too high can slowly eat away at your earnings without you knowing.
Take a look here for a few Platinum ETF ideas.
Platinum Mining Companies
Another way to play precious metals is to invest in the companies that mine them. The higher metal prices go, the more profits these companies will take in.
Here is my favorite list of Platinum Mining Companies. The list includes tickers that you can look into further to see what mining company could be a good investment.
So Is Platinum A Good Investment?
What a good question. If we look at recent history and compare Platinum to its precious metal peers, the information would tell us to stay away. We get the same signal from the comparison to the overall stock market as well. Though the recent past is not always an accurate picture of the long term future
Platinum’s use in fuel cell technology, advanced medical technologies, and the growing popularity in jewelry could continue to feed growth into the future. Look at these factors along with the overall supply and do your due diligence before investing.
Interested in looking into other investments? Try looking at our articles on these assets:
- Music Royalties – How to Invest in Royalty Income, The Ultimate Guide
- Recreational Land – Is Buying Recreational Property a Good Investment?
