Gold and silver get a lot of press, but there is another precious metal that has become increasingly of interest to investors: platinum.
Platinum is an industrial metal with uses ranging from industrial applications and manufacturing to health care and jewelry. The biggest demand driver is the automotive industry — as it is used in catalytic converters, along with other metals like palladium — which accounts for roughly one-third of global demand during the past five years, according to the World Platinum Investment Council, or WPIC.
Platinum is also rarer and harder to mine than gold since it is found deeper in the Earth’s core. This combination of short supply and broad demand should make for a lucrative investment opportunity, but investing in platinum is not for the faint of heart. Here’s what prospective commodity investors should keep in mind:
— Platinum versus gold.
— Investing in platinum.
— Is platinum a good investment?
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 with Lake Advisory Group. “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 says platinum is more influenced by supply and demand than gold, which is more influenced 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 both 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 a major South African plant. This caused the price of platinum to increase in the quarter, even as the price of gold declined — a trend that continued into 2021 when the price of platinum was up by more than 20% while gold fell 15%.
Platinum similarly outperformed gold during the 2008 financial crisis, when platinum outperformed gold by between 30% and 65%.
Investing in Platinum
So there is an argument in favor of investing in platinum, but it isn’t without its risks.
“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 2007 to mid-2008 when it outperformed gold by as much as 65%, the price of platinum plummeted by more than 60% between May and December of 2008. It ended the year almost in line with gold in terms of price.
“We consider metals a tactical play, meaning you need to get the timing right,” says Dana Anspach, founder and CEO of Sensible Money, LLC. “You are often betting on a short-term price move, perhaps in this case caused by an anticipated supply shortage, but how long will that shortage last?”
You need to have a clear exit plan when investing in platinum — or any precious metal, she says. “Will you sell when the metal hits a specific price, a certain percentage gain or when you think the market demand is changing?”
Given its price volatility, platinum may not be a long-term holding, 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 capital gains rates.
Tyler Landes, a fee-only financial planner at Tandem Financial Guidance, says betting on a single metal is likely too speculative for the average investor. He points platinum investors to more diverse offerings, such as a broader natural resources fund, hard asset fund or even more narrowly, a precious metals fund.
The iShares MSCI Global Metals & Mining Producers ETF (ticker: PICK) is an exchange-traded fund that offers commodity investors exposure to companies involved in the extraction and production of metals. U.S. News & World Report currently ranks PICK as the No. 1 fund among equity precious metals ETFs. South Africa-based Anglo American Platinum, one of the fund’s holdings, is the largest platinum producing company in the world.
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 can’t receive commissions 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.
” Investing in commodities 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.”
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