Platinum vs Gold

Platinum is purchased for industrial purposes (automotive industry), for its attractiveness (jewellery) or for investment.  Due to the metal’s limited supply and the increasing demand for it, platinum has proved to be a good investment for many precious metals investors in the last few decades.

Platinum production is far more limited than gold production – in fact, world gold production is more than 100 times greater than world platinum production. The total mass of mined platinum in the world would fit into one swimming pool.

Generally, platinum trades at 20-50% above the price of gold. When the platinum price drops below the price of gold, historically that has signified that it is a good time to purchase platinum.

Gold and platinum have both seen record gains in their prices in the last decade, due to the increased concern over the sustainability of the Euro, increased US debt and concern over the solvency of world financial institutions.

Both platinum and gold have volatile prices, however the platinum price has far more chance for huge price swings (both up and down). This is for the following reasons:

  • The price of platinum is highly susceptible to changes in labour conditions or laws in South Africa, where more than 70% of the world’s platinum is mined.
  • Platinum is used in luxury cars to make catalytic converters. (More affordable cars use palladium instead). A change in demand for luxury cars can have a huge impact on platinum prices.

Should you invest in platinum bars or coins?

Mining for platinum is difficult due to its scarcity. In addition to being difficult to locate, it is also challenging and expensive to extract.

Additionally, political and economic challenges in South Africa, including changes to labour laws, taxation and violence regularly cause large impacts on the metal’s price.  If you do purchase platinum as a long term investment, it is likely that at some point, changes in the conditions in South Africa will cause spikes in the price of the metal.

In 2008, a huge blackout across many parts of South Africa shut down much of the mining activity for some period. Additionally, at that time there was talk in the news of the government of South Africa moving to nationalize precious metals mines across the country. This had a huge impact on the platinum price, which rose to over $2300USD/oz for a period.

Platinum has long-term sustainable demand due to the increase in the middle class across India and China, who are in turn demanding luxury vehicles.

SwissBullion.ch recommends to its client that it is a good idea to purchase a diverse portfolio of precious metals, including both gold and platinum.