You may not have heard much about platinum as an investment, but this precious metal is worth considering for your portfolio. Platinum has a number of unique properties that make it a valuable commodity, and there are a number of factors that suggest now is the time to invest.
So, what is the current state of the platinum market?
Price of platinum
Platinum is currently trading at around $1,051 per ounce, as of January 25th, 2023. While this is lower than the all-time high of over $2,300 per ounce reached in 2008, it is still relatively high compared to the past few years. But that only matters if there's enough of it to go around, which there ain't.
Demand for platinum
Demand for platinum is driven by a number of factors, including its use in various industrial processes and its popularity in jewelry. Platinum is used in a variety of industries, including automotive, chemical, and electronics, and it is also a popular choice for wedding rings and other fine jewelry. About 50% of it's use goes to catalytic converters in automobiles.
Production and supply of platinum
Platinum is produced primarily in South Africa, Russia, and Zimbabwe. The production of platinum is a complex and costly process, and the supply of platinum is relatively limited compared to other precious metals. This limited supply, coupled with strong demand, can contribute to higher prices for platinum.
So, what could drive a platinum bull market?
Increased demand for platinum in industry
One factor that could drive a platinum bull market is an increase in demand for platinum in industry. Platinum is a key component in a number of industrial processes, and as the global economy grows, so too does the demand for platinum. Demand coming into 2023 is 19%, where as growth in supply is at 2%. Basic economics tells you if this doesn't equalize, we have the supply and demand dynamics of a monster bull to be.
Political and economic factors
Political and economic factors can also play a role in the platinum market. For example, economic growth in countries like China and India, which are major consumers of platinum, could lead to an increase in demand for the metal. Political instability in platinum-producing countries like South Africa could also affect the supply and price of platinum.
While economic declines could put a damper on prices temporarily, the risk to the upside with these producers and consumers far outweighs the short term risks to demand suppression. That said, a longer term outlook is critical, as 2023 has multiple factors weighing on global growth, and we may need to trudge through some mud to reach the gold ahead.
Potential substitution of platinum for other precious metals
Another factor to consider is the potential substitution of platinum for other precious metals. Platinum is often used as a substitute for palladium in certain industrial processes, and if the price of palladium were to rise significantly, it could lead to an increase in demand for platinum as a cheaper alternative.
While there are potential drivers of a platinum bull market, it's important to also consider the risks and challenges of investing in platinum, some of which I've already mentioned.
Price volatility
One risk to consider is price volatility. Like any commodity, the price of platinum can fluctuate dramatically based on a variety of factors, including changes in demand, supply, and global economic conditions. This volatility can make it difficult to predict the future value of platinum and can create uncertainty for investors. Because platinum is largely an industrial metal, it doesn't have the stabilizing forces of mass investor interest. It can spike and plummit dramatically.
Dependence on a single market
Another risk is the dependence on a single market. Platinum is heavily reliant on the industrial sector, and if there were to be a downturn in this market, it could have a significant impact on the demand for platinum. There's great uncertainty around 2023, but based on several key indicators - price of lumber, housing starts and sales, inflation (coming down but still worrisome), jobs numbers, car sales, and coming off the back end of massive financial stimuli (including $1.8 trillion in direct checks to the public) and massive gains across stocks, commodities, and crypo prices since the Covid lows - we may have some pain to endure to reset things. We're not predicting a crash, but we're also not not predicting a crash. Be open to any and all possibilities this year.
Potential for substitutes
Finally, there is the potential for substitutes for platinum in certain industries. For example, palladium is often used as a substitute for platinum in catalytic converters, and if the price of palladium were to drop significantly, it could lead to a decrease in demand for platinum.
Despite these risks, there are also potential rewards to investing in platinum.
Diversification benefits
One potential benefit of investing in platinum is the diversification benefits it can provide. By including platinum in your portfolio, you can spread your risk across a variety of asset classes, which can help to reduce the overall risk of your investments. This is especially important in times of economic uncertainty, when the performance of one particular market or asset class may be more volatile.
Potential for price appreciation
Another potential reward is the potential for price appreciation. Platinum has historically been a relatively stable investment (over long enough time horizon), and with the right market conditions, it could potentially see significant price appreciation.
High demand in various industries
Finally, platinum has a high demand in various industries, which can make it a more stable investment compared to some other commodities that are more reliant on a single market. This means that platinum may be less prone to sharp price fluctuations, providing a more stable investment opportunity.
So, how can you invest in platinum?
Options for investing in platinum
There are a number of ways to invest in platinum, including purchasing physical platinum in the form of coins or bars, or investing in platinum mining companies like Anglo American Platinum or Sibanye Stillwater, or platinum-focused exchange-traded funds (ETFs) like PLG. It's important to consider the pros and cons of each option and choose the one that best fits your investment goals and risk tolerance.
ETF's are perhaps ideal for the moderately educated investor who wants exposure to this industry, who preferrs to hold liquid assets over physical metals, and doesn't know the ins and outs of the mining industry well enough to select individual stocks.
Tips for minimizing risk
To minimize risk when investing in platinum, it's important to diversify your portfolio and invest in a variety of assets. This can help to reduce the overall risk of your investments and protect you in case of a downturn in any particular market. It's also a good idea to do your research and understand the underlying factors that may influence the platinum market, such as changes in demand or supply.
The importance of market analysis and due diligence
As with any investment, it's crucial to do your market analysis and due diligence before investing in platinum. This includes researching the current state of the platinum market, understanding the potential risks and rewards, and consulting with financial advisors or industry experts. By taking the time to carefully consider your investment options, you can make more informed decisions and increase your chances of success.
As a general rule, first identify the rising tides, and then select the best (possibly fastest) boat.
In conclusion, now is THE time to consider investing in platinum. For us, it ranks among the top three opportunities for 2023 and beyond, along with silver investment and uranium investment.
While the platinum market has its risks and challenges, it also has the potential for significant rewards. By understanding the current state of the market and the potential drivers of a platinum bull market, you can make more informed investment decisions. As with any investment, it's important to diversify your portfolio and conduct thorough market analysis and due diligence before making a decision.
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