Last updated on 9 de April de 2023
Platinum is scarcer than gold and has historically been considered more precious than its yellow counterpart. We analyze the main application for platinum, its historical prices relative to other precious metals, and how to invest in platinum.
- Main Applications of Platinum
- Historical Platinum Prices
- Ratio between Platinum and Gold
- Ratio between Platinum and Palladium
- How to Invest in Platinum
Platinum is a light gray metal. Despite its visual similarities with silver, it is one of the rarest precious metals in existence, being scarcer than gold.
It was discovered by a group of Spanish conquistadores on the American continent in the 16th century. In fact, its name is derived from being similar in appearance to silver (plata, in Spanish).
Initially, it was believed to be a vulgar metal without any value. But in the following decades, their characteristics began to be studied. Platinum is highly resistant to corrosion, extremely durable, and melts at temperatures well above those of gold, above 1700 degrees Celsius.
The symbol for platinum on the periodic table is Pt. However, if you are interested in investing in platinum, what you want is to know its ISO code: XPT.
Main Applications of Platinum
Thanks to its unique properties, platinum is mainly used for industrial purposes:
The automotive industry is the main consumer of platinum. The precious metal is used to produce catalytic converters. Catalytic converters are used with combustion engines, both petrol and diesel, to reduce the level of emissions from cars.
One of the reasons why the price of platinum has fallen over the last decade, as we will see in the next section, while the price of palladium has risen, has been the changes in the automotive sector. Thus, demand for platinum has dropped and demand for palladium has increased.
Catalytic converters for diesel-powered cars use more platinum than palladium, and diesel has been badly affected by a multitude of environmental scandals. Meanwhile, demand for gasoline cars has increased. Catalytic converters for gasoline engines use more palladium than platinum.
Something to remember, however, is that often both precious metals are interchangeable, so their prices should mean revert in the long term. Nevertheless, such adjustments may take time as it is up to the companies producing catalytic converters to launch new designs.
For the long term of the automotive industry, it is important to bear in mind that both platinum and palladium can be found in both electric and hydrogen-powered vehicles.
The second most important application for platinum is jewelry. Platinum is one of the most prestigious precious metals and used to produce both jewelry and luxury watches.
Something worth highlighting about platinum is that it is also used in marketing campaigns, especially in customer loyalty programs. While this has no direct impact on the metal itself, it does indicate that platinum is frequently associated with luxury. For both credit card issuers and hotel chains, platinum is always more exclusive than gold.
Platinum Investment Products
Finally, the third major use of platinum is the production of investment products such as coins and bars. In that sense, investors expect the metal to be able to retain its long-term value, very much like gold and silver, while adding a greater degree of diversification to our portfolio.
Historical Platinum Prices
The price of platinum has been quite volatile over the past few decades. It is worth mentioning that, like the price of silver, the price of platinum is more correlated with that of other commodities than gold.
In the following chart, we can see that platinum traded above $2,000 per ounce in 2008. However, it has been in a bear market for more than 15 years, as its price in early 2023 was below $1,000:
Ratio between Platinum and Gold
For more sophisticated investors, comparing the prices of different precious metals is very useful. This is how they can see, for example, if platinum is trading cheap or expensive relative to gold, to decide if they bet on the continuation of the current trend, or if they expect that there will be a return to the historical average.
The graph below shows the ratio of platinum to gold since the beginning of the 20th century. That is, how many ounces of gold we can buy with an ounce of platinum. The higher its value, the higher platinum trades relative to gold:
As we can see, platinum has become substantially cheaper compared to gold over the last two decades. Prior to the 2008 financial crisis, the ratio was around 2. This means that one ounce of platinum could buy us two ounces of gold.
Since the start of the financial crisis, the ratio of platinum to gold has been gradually dropping to historic lows of around 0.5. With this ratio, we would need two ounces of platinum to acquire a single ounce of gold.
In other words: platinum has fallen by 75% against gold since 2008. If we believe that the ratio will return to its long term average, above 1, and even above 2, we should favor the purchase of platinum over gold.
Ratio between Platinum and Palladium
Regarding the ratio between platinum and palladium, it is also very interesting. This is because both metals have many things in common. Both of them are platinum group metals, have similar uses and are, in many cases, interchangeable.
Historically, the price of platinum has tended to be much higher than palladium. In fact, the ratio between platinum and palladium, as we can see in the following chart, was above 5 just over a decade ago. This means that an ounce of platinum cost the same as 5 ounces of palladium:
However, the trend has since reversed, and platinum has been falling steadily against palladium. Since 2017, palladium has been more expensive than platinum. The current ratio is below 0.5. This indicates that an ounce of palladium is worth more than two ounces of platinum.
This is mainly due to the environmental regulations that have been passed for the automotive sector since 2008, which have tended to favor the use of palladium in catalytic converters, to the detriment of platinum.
Because both metals are often substitutable for each other, it is possible that the depreciation of platinum relative to palladium will make vehicle manufacturers more likely to use catalytic converters with higher amounts of platinum in the future. If this were to happen, the ratio would return to levels closer to its historical average, making investing in platinum more attractive than investing in palladium.
How to Invest in Platinum
There are several ways of investing in platinum, both directly and indirectly. Let us talk about them:
As with other precious metals, one option for those interested in investing in platinum is to simply buy physical metal. This can be done in the form of coins and bars.
When it comes to coins, it should be noted that several official mints around the world produce platinum coins, including the UK’s Royal Mint. Platinum investment products are available on websites like CoinInvest (non-sponsored link).
A negative thing of buying physical platinum is that, in most countries, platinum purchases are subject to VAT or sales tax. That contrasts with gold, whose investment products are usually exempt from such taxes.
Another option is to put our money into a physical platinum ETF. There are several issuers of this type of funds, and it is one of the easiest ways to invest in platinum, since our investment will be as liquid as a stock. An example of platinum ETF is the one sponsored by the Swiss bank ZKB.
Additionally, platinum ETF purchases are not subject to VAT or sales taxes.
Platinum Mining Companies
Finally, we can also invest in platinum indirectly by buying stocks of platinum mining companies. It should be highlighted that this type of investment can be more complex, since there are more variables to take into account.
However, it can also be an extremely profitable trade if the price of the precious metal were to rally in the future.
Investing in platinum can be a great way to diversify our portfolio and making it more robust for difficult macroeconomic scenarios. There are two main reasons for investing in platinum:
On the one hand, it is an industrial precious metal. This means it can do very well if we have a period of strong inflation, or even stagflation. The next decade may be marked by a very significant increase in the cost of living. Owning real assets in such circumstances, such as platinum, is likely to prove a good investment.
On the other hand, we have already seen that platinum is trading at all-time lows relative to gold. The ratio of platinum to gold has fallen 75% since 2008. And such drop is even more extreme compared to palladium, with the ratio between both metals having dropped by 90%.
If platinum made a comeback, and the overall precious metals segment enjoy a bull rally, platinum can delivery extraordinary gains.
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