Have you ever thought of investing in platinum? It is certainly less common to do so compared to silver and gold.
In this article, we provide background information about platinum and discuss its recent performance and analysts’ outlooks. We then go over some common ways to invest in the commodity and how you can do so with DEGIRO.
What is platinum and what is it used for?
Platinum is a silvery-white metal that is mined primarily in South Africa and Russia. Compared to some other precious metals, such as gold, it is more difficult to mine, and it is rarer due to its scarce supply. It is one of the four major precious metals, but it also has many industrial purposes.
According to the World Platinum Investment Council’s most recent report for CME Group, in 2019, the sources of platinum demand were the following:
- Automotive applications (36%): The most demand for platinum comes from the automotive sector. Platinum is used mainly in autocatalysts in automobiles, which curb harmful emissions.
- Jewellery (26%): Due to platinum’s rarity, durability and purity, it is a popular metal used in jewellery. Most of the jewellery demand comes from China, accounting for 41%.
- Industrial (24%): Platinum has a wide range of industrial uses, namely in the chemical, medical, glass, petroleum and electrical sectors.
- Investment (14%): Investment in financial products backed by platinum along with platinum bars and coins is the smallest segment of platinum’s demand.
Factors that impact platinum prices
The platinum market is relatively small compared to silver and gold, and therefore prices can fluctuate more dramatically. Since platinum is a highly industrial metal, it is more responsive to supply and demand fundamentals, whereas gold, for example, can be sensitive to investor sentiment. During periods of economic stability and growth, platinum prices tend to increase as demand increases during these times.
Political stability can also affect platinum prices. As South Africa and Russia mine the majority of platinum, if there is political unrest in these countries, supply can be impacted, thus impacting prices.
As the largest source of demand, the auto industry also plays a role in platinum prices. Aside from being used in autocatalysts to reduce emissions in diesel and gasoline automobiles, platinum also has a role in the “hydrogen economy”, the shift to replace fossil fuels with hydrogen as a primary energy source. The metal is used in electrolysers to make hydrogen and fuel cells, which power cars, trains and ships. According to Barron’s, some analysts predict that fuel cells could account for 6% of platinum demand by the end of the decade. Thus, demand in the auto industry can impact platinum prices in various ways.
Platinum price expectations
Platinum prices recently rallied, with spot platinum prices hitting a six-year high on February 16th, surpassing $1,300 an ounce. Out of the four major precious metals, platinum has performed the best so far this year. According to Bloomberg, the rise in prices is due to bets that industrial demand will increase and stricter emission regulations will tighten supply.
Analysts at several top banks and institutions are bullish on platinum. For example, a senior precious metals strategist at ABN Amro said platinum prices have recently been driven higher on optimism for industrial and car demand and stricter emission regulations and believes there is longer-term potential for prices to rise. CEO of Sibanye Stillwater, the world’s top platinum miner, predicts that platinum prices could surge by more than 80% in the next four to five years. Lastly, the director of research at the World Platinum Investment Council said that while platinum has historically traded at a premium compared to gold, it is currently trading at a discount, suggesting that platinum is undervalued. He believes that platinum prices will move towards gold prices, mostly driven by the substitution of palladium for platinum.
Investing in platinum
Being a versatile metal, platinum presents many investment opportunities. There are many ways in that you can invest in platinum, each of which having risks involved. It is important to only invest in financial products that match your knowledge and experience and are suitable for your investment plan. Below are some common ways to invest in platinum:
- Bullion: One way to invest in platinum is to physically buy it. For example, you can purchase platinum in the form of bullion, coins or jewelry.
- Stocks: Another way to invest in platinum is via platinum mining stocks. Examples are Sibanye-Stillwater, Anglo American Platinum and Impala Platinum.
- ETFs: There are also many platinum exchange-traded funds (ETFs) available. Investing platinum ETFs gives you broad exposure to the industry in a single product. Examples are WisdomTree Physical Platinum, Xtrackers Physical Platinum and ZKB Platinum.
- Futures: Additionally, you can invest in platinum futures. Futures are complex instruments and can have a high risk of losing your investment, or even more.
Investing with DEGIRO
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The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products that match your knowledge and experience.
Deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.
Sources: Barron’s, Bloomberg, CME Group, World Platinum Investment Council, Kitco, Mining Weekly, Investopedia, Scottsdale Bullion & Coin, Reuters