Platinum vs gold: where might precious metals fit in your portfolio?
15:01, 24 June 2019
Precious metals have always been a thing. For decades, they have continued to attract investors looking to diversify their portfolio of regular stocks and bonds. These luxury commodities have been around for centuries, serving as one of the most popular financial vehicles through the ages. Platinum vs gold – which one will shine for you in 2019?
Role of precious metals in the global market
From stories and tales as old as time, the conquest of gold and treasure have always been items of desire for many. For centuries, metals such as gold, platinum and silver have been the driving force of rising kingdoms and economies. Even today, no one can deny the powerful economic impact of these metals.
Precious metals are naturally occurring rare metals, holding significant economic value. Typically regarded as an investment and industrial commodities, platinum and gold remain two of the most prominent precious metals today. Both metals have their own range of uses from investment to industrial material to currency. Moreover, each metal has its own relationship with the economy: the value of one decreases as does the economy, while the value of other metals goes up as the economy sinks.
Thousands of tons of precious metals are mined yearly, adding to the stock of metal available. Apart from being used in jewellery and wider industry, gold and platinum are also held in store as an investment and as a part of countries’ official reserves. The combination of all these factors creates an active global market for these precious commodities, which, in turn, affect many aspects of global economic performance.
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Platinum vs gold: differences jewellers won't tell you about
As a matter of fact, there is a hierarchy amongst the precious metals, which roughly represents their material value. At the top of this tree sits platinum, the shiny white metal that is recognised globally as one of the highest symbols of value and quality. That is why platinum is generally considered to be the most treasured metal of all, and, throughout history, has tended to be more expensive than gold.
It has its reputation for a number of reasons: the supply of platinum in the Earth’s crust is lower and its extraction process is more difficult than that of gold. However, when in 2018 both platinum and gold prices hit rock bottom, the latter managed to get back on track, reaching $1,300 in January 2019. Platinum, however, hasn’t done so well.
When investing in precious metals, it is important to understand what drives their value. Here are the key differences you should know before throwing your hard-earned cash at either of these.
Supply and demand determine how much you pay for your metals. Currently, the global supply of gold far exceeds that of platinum. Moreover, platinum mining is primarily concentrated in one country – South Africa, which accounts for some three-quarters of the total production of the metal worldwide, followed by Russia and Zimbabwe. If a negative event were to happen in this region, such as a labour strike, platinum prices will rise as there is not much of an alternative in the market.
On the other hand, gold mining occurs in almost every corner of the planet. Therefore, a supply disruption in one country is unlikely to impact prices as dramatically. In addition, the extraction of gold is much easier and less costly than platinum.
With that said, platinum tends to hit a higher price than gold during political stability and routine periods of market activity due to its rarity.
Demand for platinum is much less stable than that of gold. Although platinum is a precious metal, its end use is often like that of industrial metals such as silver, aluminium or copper. The biggest market for platinum, which currently accounts for approximately 50% of total usage, is in the automobile industry, particularly in catalytic converters for cars, trucks and buses. The jewellery industry clocks in as the second-biggest consumer of platinum, followed by petroleum and chemical refining catalysts.
In times of poor economic performance, the demand for heavy machinery, vehicles and others powered by engines containing platinum decreases, leading to a decline in metal demand as well as its price. Conversely, a sound economy increases platinum demand. Thus, the fortunes of platinum majorly rely on global economic conditions, performing correspondingly.
Gold is primarily used as a way to store one’s wealth or savings, whether it is in the form of bullion, jewellery or investment. It has some industrial application in electronics and dentistry, however, its role as a form of the currency remains central.
Gold trades predominantly as a function of sentiment: its price is less affected by the laws of supply and demand. Therefore, it is much less likely to experience the erratic swings in demand that platinum does.
Therefore, with both supply and demand vulnerable to extreme fluctuations, it is not surprising that, in the present economic situation, platinum tends to be cheaper than gold. The gold-platinum ratio is the best way to understand the price relationship between the two: if the ratio is above 1, platinum is cheaper than gold, and vice-versa.
The chart below shows the daily gold vs platinum chart, representing platinum value vs gold value over the past 5 years. Both gold and platinum are shown in US dollars per troy ounce.
Advantages of investing in platinum and gold
Whenever there are times of economic or political uncertainty, you might see a sudden increase in metal demand. Stocks, bonds and funds fluctuations often trigger people to hedge their portfolios by investing in precious metals. If there’s a possibility that securities seem threatened, metals play their role of a tangible asset that you can rely on to keep its value. Gold and platinum can truly be called a global currency that serves investors as a unique tool to hedge against different kinds of turbulence.
Precious metals have low-to-negative correlations to other asset classes. Therefore, if even the smallest percentage of these are included in your investment portfolio, it will reduce both volatility and risk. Metals have proven themselves to be a safe haven for investors in times of uncertainty, giving a beneficial diversification from common paper assets, which may be threatened by international decline. The intrinsic values of gold and platinum are also independent of currencies, serving as a hedge against inflation.
Truth be told, every investment comes with risks, including the unpredictable nature of the economy itself. Yet, precious metals hold a stability of which almost no other investment can boast.
Platinum vs gold: which is the better choice?
Choosing whether to go for a platinum vs gold investment can be rather hard, as both ‘luxury’ commodities offer many advantages and act differently in the same market conditions. In the past few years, the value of both metals has gone up and down, putting potential investors in doubts. Luckily, we live in the information era with many databases and statistics you can use to your advantage before investing in these precious metals.