Investing in Platinum

Platinum is used for a wide variety of industrial applications, and although it is highly collectable to bullion investors, its price is more closely tied to its industrial uses than many other precious metals. In 2010, it was estimated that 46% of platinum was used for emission control devices in vehicles. 31% was used for jewelry purposes, and the remainder was used for a variety of applications, including refined bullion.

Platinum is one of the rarest mineral in the earth’s crust, mined mostly as a byproduct of nickel and copper deposits. Most of the world production comes from South Africa, with all other countries trailing far behind in production. As an industrial product, platinum is used in catalytic converters to aid in the complete combustion of lower concentrations of unburned hydrocarbons. From an investment standpoint, the large reliance on platinum group metals for this need is a double-edged sword. While the current reliance on the metal continues to make its value remain high, there is also the risk that new technologies will reduce to need for platinum use in this capacity, which would undoubtedly have a huge impact on the price of the metal.

Investors can retain platinum in the same ways as other precious metals like gold and silver. Holding the physical metal remains a very popular way to invest in platinum. Due to the relatively high cost per ounce, storing the physical metal is easy to do and many investors prefer keeping physical platinum in their safe deposit boxes rather than investing in “paper”. Physical platinum can be purchased in various sizes in the form of coins and bars. Common denominations range from 1/10th ounce coins up to 1 troy ounce coins. Physical metal is easy to buy and sell, and is preferred by many investors.

Investing in mining companies that produce platinum is another way to invest in platinum. However, investing in this way requires significant research, as only a small percentage of mines produce platinum on any significant scale.

Additionally, since platinum is often produced as a byproduct of other base metals, the stock of many of these mining companies will be more affected by the price of the base metals that they produce rather than platinum. Despite its high cost, platinum often makes up only a very small percentage of the profits at most large-scale mining operations.

Investors may also choose to put their money into exchange-traded funds and mutual funds that have emphasis in platinum group metals. Although nowhere near as commonly available as those for gold and silver, there are still options available. Purchasing platinum futures is another option, but can have much higher risk than some of the other options out there. Since these options are more limited when compared to gold and silver, the majority of platinum investors prefer to hold physical bullion rather than other investment options.

All investment requires risk. Always understand the risks involved prior to making any investment. This article is for informational purposes only.

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