Is Now the Time To Buy Platinum?
In 2008, platinum was trading at $2,000 per troy ounce, nearly double the price of a troy ounce of gold. In 2022, this paradigm seems to have flipped completely. Gold is worth nearly $2,000, while platinum has fallen to a value of around $1,000 per troy ounce. What led to this significant decline in the value of platinum? For some investors, the evidence suggests that platinum is due for a significant increase in value as the commodity ‘bounces back’ to its previous highs from 2008. After all, gold also experienced a near 50% decline in price in 2016 and has since climbed back up to its recent highs of $2,300.
Before we can make a solid judgment on whether or not now is the time to buy platinum, we should develop a solid understanding of the factors that have motivated this troubling decline in platinum’s value. After all, it might be the case that platinum is simply a dying commodity destined to depreciate in value over time. We strongly believe that the evidence suggests that the opposite is true, and that platinum’s price decrease provides a forecast for a future increase in the value of the commodity.
In this guide, we’ll be walking readers through the history of platinum in the 2000s, as well as some of the causes for its mid-2000s declining price trends to help answer the question as to whether now is the time to buy platinum. Additionally, we’ll explain how the price action and hard elements behind the industry behind the precious metal contribute to a favorable outlook for the future of platinum.
It’s always hard for new investors to consider investing in an asset which has been declining in price for the past decade. However, similar trends in other markets within the bullion industry suggest that now might very well be the perfect time to start investing in platinum. Gold certainly seems to provide a safer option, as its price has continued to climb over the past four decades. Platinum has also always been a relatively volatile investment. For investors who are looking to weigh their options on the historically riskier strategy of investing in platinum, read on to learn more about whether now might be the perfect time to buy platinum.
Platinum: A Brief History
Platinum actually has a far less expansive history than its counterparts, gold and silver. While gold has been used to some degree by societies for thousands of years, platinum was really only discovered by the Spanish Conquistadors at the tail-end of the 17th century. The product was difficult to melt, so the Conquistadors were unable to turn it into coins like they had done with gold. It wasn’t until the 18th century when Scheffer, a Swedish bullion specialist, was able to correctly identify platinum as a new element. This man was also the first to successfully melt the metal.
Although many investors might not know this, platinum’s history (and value) has been closely tied to its industrial applications. Berlin scientists used the precious metal to create extremely durable laboratory tools in the 1780s. Today, much of the global output of platinum is used for these purposes, providing platinum with a useful industrial application that many other precious metals fail to provide.
While the industrial applications of platinum only continued to grow during the 18th and 19th centuries, the precious metal was extremely difficult to find. Its demand was high, but supplies remained extremely limited. It wasn’t until 1822, when platinum was discovered in droves within Russia, that people began to see platinum as a precious metal worthy of investment – instead of just industrial use.
Platinum as a Modern Commodity
In the 21st century, platinum group metals exploded in popularity as industrial demand soard. New applications for the precious metal are constantly being discovered, and this pattern continues today. Because platinum is exceptionally hard, it is used in neurosurgical items, in dental appliances, in prescription medications, and in computers and cars. The supply of platinum, however, remains notoriously restricted. Our global supply of platinum is less than 5% of the total supply of gold, according to some estimates. Additionally, the refinement process for platinum is more complex and time consuming than the refinement of gold, meaning that even the platinum that we do have might be unavailable for industrial use for long periods of time.
Platinum extraction almost exclusively takes place in two counties: South Africa and Russia. Supply chain issues in either country can be catastrophic for the global stock of platinum, making them essential players in the industry as demand for platinum products continues to grow globally.
Although these facts create obstacles for platinum as a usable product, these same elements of the platinum industry make it an ideal candidate for investment. Platinum group metals offer some of the most lucrative fundamentals in the bullion sector. Because of high demand and low supply, platinum quickly became a commodity that was – briefly – even more valuable than gold.
The platinum bullion sector as we know it today has only really existed for about a century. The first platinum coins were minted in Russia nearly two centuries ago, but global bullion investors only began putting money into the precious metal en masse during the mid-1900s. Platinum coins only became legal tender in major global bullion markets like Britain in 1983; Australia followed suit in 1988 and the United States Mint distributed the popular Platinum American Eagle in 1997.
Why did Platinum Lose Value?
In considering whether to buy platinum as an investment or whether now is the right time to buy platinum, the price action (more specifically the price drop over the last decade) may be the most interesting information to readers.
Experts don’t agree on the precise reason behind platinum’s surprising drop in value. By comparing the precious commodity to palladium, another platinum group metal, we might be able to come up with a few insights behind why the latter has become more expensive than the former. Both palladium and platinum are used in the production of energy-efficient exhaust systems. The global market, as well as regulations in leading car-producing countries, has led to an increased demand for exhaust systems capable of reducing emissions. Environmentalist movements have been pivotal in the explosion and popularity of these ‘green emissions’ vehicle components.
These vehicle components traditionally used almost exclusively platinum, which led to an increase in demand. During the 2008 financial crisis, there were concerns that the supply and mining operations of platinum were threatened. This explains the extreme price spike for platinum that occurred during this period. While platinum’s price eventually corrected back to lower amounts, palladium continued to rise and now trades at double the spot price of platinum.
Some experts believe that palladium has outpaced platinum primarily because of palladium’s efficiency as a low-efficiency exhaust system component. As it turns out, palladium can actually be used to serve a similar function in green vehicles that platinum serves. Additionally, a smaller amount of palladium can be used than platinum in order to do a similar job. This has led to a decrease in the demand for platinum and an increase in demand for palladium.
Is this the only reason why platinum has declined in value? Surely not. A number of conditions, including general market sentiment, political conditions, and discoveries of additional caches of platinum are all contributing factors in the depreciation of platinum in the past decade.
Platinum: Future Predictions and When’s the Time to Buy Platinum
Of course, it’s tough to say with certainty what the future might hold for platinum. However, both proponents and detractors of platinum as an investment vehicle provide a wealth of wisdom for consumers interested in buying platinum. In this section, we’ll take a look at some of the major pros and cons of investing in platinum group metals.
Why Might Platinum Go Up?
Demand for platinum has been increasing. According to one source, platinum demand in 2021 skyrocketed, increasing by 21%. This is the equivalent of 283,000 ounces, and the increase occurred during only one financial quarter. There are a number of reasons why this increase in demand may have happened, but two major contributing factors are the jewelry and automotive industries. While palladium may be more efficient for use in green emissions vehicles, palladium is still about 15 times rarer than platinum. Especially in times where palladium supplies are short, a growing demand for low-emissions vehicles will turn more eyes on platinum.
It still might be a while before platinum truly recovers to its original highs. One large obstacle to platinum’s climb back to the top is the increased supply that entered the market in 2020. When the supply of platinum is this high, exceptional demand might be necessary in order to make the price move in the right direction.
Part of the bullish sentiment surrounding platinum has to do with the growing importance of the low-emissions automotive parts sector. As more-and-more governments make it legally required to manufacture vehicles with low emissions, demand for platinum will continue to increase. Most importantly, demand for these vehicle parts might outpace the available supply of palladium, which would then make platinum the leading contender for the market.
What are the Risks of Investing in Platinum?
As with any investment, there are risks associated when you choose to buy platinum. Again, we won’t bore you with the regular spiel about the downsides inherent to all potential investment strategies. But consumers should know that platinum is not a guaranteed investment; there are no assurances that platinum will rise in price, even if the historical trends suggest that the commodity might eventually bounce back to its all-time high.
Platinum also comes with its own major risks and downsides. For one thing, platinum is one of the most consistently volatile commodities in the bullion sector. While gold and silver have climbed in price at a relatively stable rate over the years, both the spikes and declines in platinum group metal price trends are abrupt and significant.
Earlier in this article, we explained that bullish investors speculate that platinum may regain its spot as the most valuable bullion asset because of increased demand for the low-emissions vehicle components that platinum helps to facilitate. However, this heightened demand is no guarantee and not a reason in itself to buy platinum. It is entirely possible that palladium will become the primary metal used in many of the industrial products that have provided concrete value to platinum. In fact, any number of scientific innovations could make platinum less valuable.
Our recommendation is always that consumers conduct their own research before making any new investment decisions including their choice to buy platinum or any other precious metal. While some investors and experts strongly believe that platinum is due for a heavy inflation in value, other analysts disagree.
Final Thoughts: Is it Time to Buy Platinum?
Just over one decade ago, platinum dominated the market as the most expensive popular precious metal. This paradigm has shifted significantly since 2008, when concerns about the global supply of platinum caused the price of the commodity to crash. Platinum has not yet recovered. While its industrial applications provide platinum group metals with an exceptional set of hard fundamentals, platinum has fallen below the price of even palladium – which is used in similar industrial settings.
Because of the longstanding depreciation in the value of platinum, some investors consider now to be the perfect time to invest. Platinum sits at just below half of its 2008 prices, and many consumers hope to capitalize by putting their money into the precious metal.
As low emissions vehicles continue to become popular – or even mandatory – the outlook for platinum is exceptional from an applied uses standpoint. Will this be enough to save platinum as a valuable asset for new and existing investors? Only time will tell.
If you choose to invest in platinum, consider reading our guide to buying platinum bullion. Hero Bullion is happy to provide you with as much information as you need to make an informed decision about your next bullion investment.
About The Author
Hero Bullion provides an environment that is informative and safe for those looking to own physical gold and silver bullion as an investment. We love helping folks at all stages throughout their bullion journey making progress towards acheiving their financial goals. Whether you are a seasoned bullion investor or brand new to the game of gold and silver bullion ownership, we're here to help and serve you in any way we can.