Should You Invest in Platinum?

The platinum price has risen over 25 percent year-to-date, but has cooled off lately. Should investors still consider the precious metal?

Platinum-nugget

Overall, the platinum price has rallied significantly year-to-date, rising 25.70 percent to $1,076 per ounce, making platinum investing a hot commodity in 2016. The precious metal soared to a year-to-date high on August 10 when it reached $1,175, although it has notably dropped off since then. 

Keeping that in mind, platinum and its sister-metal, palladium, tend to move together and are volatile in highly concentrated environments.  Most of platinum’s supply comes from Russia and South Africa–which together account for somewhere between 70 and 80 percent of global supply–although that, too, has recently dropped off with the mine strike in South Africa.

With the wage negotiations and labour issues in South Africa, and strong demand for vehicles in China driving the prices, panelists polled by FocusEconomics in its August 2016 report project the platinum prices continually dropping from its 2016 highs in the second half of 2016 to $1,055 an ounce.  Still, a number of the panelists project the prices to gain some lost ground in 2017, rising gradually to $1,160 per ounce in the fourth quarter.

To put it simply, the short term outlook of the platinum price may be on the downtrend, but what about investing in the precious metal long term?

Platinum investing long term

It’s been said that among precious metals, platinum is the most expensive and rare. Aside from that, it also has a variety of uses: technology,catalytic converters, laboratory equipment, electrical contacts and electrodes, thermometers, dentistry equipment, jewelry, and automobiles to name a few.

According to Metal.com, investors are starting to look more and more at platinum and palladium as investment opportunities as gold consolidates, which were also allegedly contributing factors to the rising prices.

In the Campden FB publication, the World Platinum Investment Council  (WPIC) said that “platinum has shown itself to be a successful investment over the long-term,” and have a number of attributes that “family offices have revealed are important to them,” according to a survey done by the WPIC.

WPIC noted:

Among conclusions drawn were that platinum’s investment attributes often satisfy the prerequisites for family office portfolio consideration. The levels of due diligence and granular analysis necessary for successful investment in private equity, undertaken by many family offices, are well suited to investing in platinum.

It also suggested that platinum is an “enduring precious metal” that is supported by both “short and long term demand drivers, fundamental deficits and investment characteristics.”

In other words, platinum is a safe investment long term due to its wide range of uses–as a precious metal and as an industrial meal–but is driven heavily by supply and demand.

Supply and demand

Of course, like other commodities, the success of platinum is tied closely to supply and demand. In a WPIC press release, it noted global platinum demand is expected to increase to 8,255 ounces during the year, which is up from 8,220 ounces in 2015. As mentioned earlier, South Africa accounts for roughly 73 percent of total global platinum output, but has been declining, according to Investing.com.

Still, some have a positive outlook: Finance Mitigates suggests that the supply and demand is “close to being balanced,” with the US dollar and the Federal Interests rates as factors. On the other hand, WPIC reports that supply has been reduced by 230 ounces–a one percent decease to 7,800 ounces. Furthermore, Bullionvault reported that supply is expected to decrease three percent in 2016.

The publication also noted that global demand is being driven by strong investment demand, the automobile industry, and by demand from Japan.

When it comes to the automobile industry, Investing.com reported that demand for the gray metal could be affected if the auto industry can’t maintain stability; if successful, we can expect greater demand for the precious metal.

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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.

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