Platinum

Platinum may be rare, but today it is the third-most-traded precious metal in the world. It is widely used in a variety of sectors, and in recent years high demand and low supply have pushed the platinum market into deficit.

Generally when demand for a metal is high and supply is low, its price will rise. However, for platinum that has not been the case — in the last five years, the platinum price has fallen about 40 percent. In the first quarter of 2017, it was trading around the $1,000-per-ounce mark.

Nevertheless, many investors remain hopeful about platinum’s prospects moving forward, and are keen to learn how to invest in platinum. With that in mind, here’s a brief overview of platinum supply and demand dynamics, and a look at a few different ways to start investing in platinum.

Platinum supply and demand

South Africa is by far the world’s top platinum-producing country. It accounts for 70 percent of world production, and holds the largest-known reserves of platinum-group metals globally.

Platinum mine production in the country dropped in 2016 due to several mine stoppages, and those disruptions led to a wider-than-expected platinum deficit of 270,000 ounces last year. The World Platinum Investment Council (WPIC) is calling for another platinum deficit in 2017, although it should come in at just 120,000 ounces.

On the demand side, the automotive industry is the world’s largest consumer of platinum; the sector uses the metal as a catalytic converter for vehicle exhaust systems. Automotive production is forecast to jump in the coming years, particularly in developing markets, and that is expected to ensure healthy demand for platinum into the future.

“China is a big part of this story,” Jonathan Butler, a precious metals strategist at Mitsubishi (TSE:8058), said in March 2017. “The level of car ownership is still growing, and there are signs that it could get to western levels.”

The platinum price is expected to exceed 2016 levels and average about $1,000 in the final quarter of 2017, FocusEconomics said in a Q1 2017 report. ANZ (ASX:ANZ) is more optimistic, and is calling for the price to reach $1,150 during that time. Meanwhile, ABN Amro Group (AMS:ABN) sees the metal reaching $850.

How to invest in platinum

Investors who believe the above market dynamics will eventually result in a price rise for platinum may be interested in investing in the metal. There are several ways to do so, with the first being to purchase physical platinum bars or coins directly. 

Such purchases can be made through a bullion dealer. One option is the WPIC and BullionVault’s online physical platinum market, which is open 24 hours a day, seven days a week. It gives private individuals access to vaulted platinum at the same costs currently paid by institutional investors.

Those interested in physical platinum can also gain exposure via the Sprott Physical Platinum and Palladium Trust (ARCA:SPPP). It provides access to the physical platinum bullion market while allowing the flexibility of an exchange-traded security. Exchange-traded funds like the ETFS Physical Platinum Shares (ARCA:PPLT) are also an option.

A third way to invest in platinum is, of course, to own shares of a platinum-mining company. Some of the top platinum companies include Wallbridge Mining Company (TSX:WM), Impala Platinum Holdings (JSE:IMP,OTCMKTS:IMPUY), Lonmin (LSE:LMI) and Anglo American Platinum (LSE:AAL).

This description was last updated on April 10, 2017.