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June 2012
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Platinum as an investment option

Future of Platinum investments compared to gold and silver

With the volatility in the stock markets and recent recession on the minds of the investors, alternative investments have assumed great importance. Investing where money will be safe is the new mantra. Obviously, commodities have become the new investment option knowing the great Indian fascination for the metal; gold and silver have been invested in widely. But today, the prices of gold have also skyrocketed. Silver is not as much preferred as gold. So, an alternative to gold has to be searched. Is platinum a viable alternative? Today, platinum is known as rich man’s gold. Will it appeal to the common man?

Platinum is inherently, costlier than gold. Compared to gold, platinum responds very differently to economic stimuli. Past history reveals that the price of platinum runs in a similar curve as gold, palladium and silver and platinum has always led the bullish sentiment in the markets with palladium. The only downside is the volatility. Historically, platinum has been more volatile than gold or silver. In a strong bull run, platinum/gold spread widens considerably, sometimes reaching figures of about more than $150-$200 occasionally in the last twenty years. It is a fact that in time of extended economic boom, platinum tends to outperform gold and silver but during period of recession, platinum is not such a strong performer. It has been observed that investment in gold increases, maybe due to the psychological attachment of the investors to the yellow metal.

Platinum has a lesser history in the financial markets as compared to gold or silver. Gold and silver have been invested in since ancient times whereas platinum’s history in the financial markets began in the twentieth century.

What could set apart the role of platinum from the rest ?

The supply of platinum in the markets is much lesser than that of gold or silver. It is estimated that the annual supply of platinum is only about 130 tones. This only accounts for about 6% of the annual supply of the Western World’s annual mine supply of gold, going by weight considerations. This figure is also less than 1% of the mine supply of silver by weight. Besides, unlike gold, large inventories of platinum do not exist. Any gap in supply will lead to great volatility in the price of the precious metal.

Apart from economic considerations, the mentality of the consumers also has to be taken into consideration. Indian women prefer gold over platinum. But platinum being used in diamond jewellery is preferred over silver. Platinum, therefore, is not preferred over gold.

Due to the high volatility and mentality of the Indian consumer, platinum has not replaced gold or silver as yet although the potential to emerge as a viable investment option to the experienced investor cannot be ruled out. With proper tracking of the prices, an experienced investor can take advantage of this metal and make a profitable investment.

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