Gold is the granddaddy of precious metals, at least from an investment perspective. But other precious metals such as platinum and silver have their own place in a savvy investor’s portfolio. They are tangible assets with intrinsic value. The Federal Reserve cannot print more of them. Both gold and platinum have their own unique qualities. In this gold vs platinum comparison, let’s check out which precious metal is a better investment and why.
Precious metals have attracted investors looking to diversify their portfolio of stocks, bonds, and cash. For centuries, platinum has been considered a higher symbol of value and quality, primarily because it’s rare and more difficult to mine. According to US Funds, worldwide gold production stood at 3,332 tonnes in 2018 compared to just 165 tons of platinum.
Gold is by far the most popular investment among precious metals. Investors large and small buy gold to diversify their portfolio, especially during uncertain economic conditions where the S&P 500 may be crashing. The yellow metal is durable, malleable, and it acts as a hedge against inflation. You can invest in gold by purchasing jewelry, coins, bars, bullion, derivatives, futures contracts, and gold ETFs.
Gold prices go up when there is an economic crisis or slowdown as investors run to the safety of precious metals. Though it serves as a hedge against inflation, it doesn’t have growth potential. A 10g gold coin will still be a 10g gold coin even after years or decades.
Jewelry accounts for nearly half of the gold demand worldwide. The yellow metal also has applications in dentistry, electronics, and aerospace industries. Central banks also store gold in their official reserves because of its perceived value as an alternative currency.
Since gold is a store of value, its price depends less on the laws of supply and demand, and more on the sentiments of individuals and institutions hoarding it. When the economy is booming, investors sell gold to invest in stocks and other assets, which brings down its price. During unstable economic conditions, they rush to buy gold, which pushes its prices higher.
Gold becomes the investment of choice when inflation runs high. Wars and geopolitical tensions also prompt investors to seek refuge in the yellow metal.
If you look at the material value of precious metals, platinum sits at the top. The shiny white metal is considered a strong symbol of value and quality. The supply of platinum is much lower vs that of gold. It’s also far more difficult to extract than the yellow metal. As an investment, platinum doesn’t have as long a history as gold, which has been facilitating trade since ancient civilizations.
Unlike gold, platinum is highly malleable. It also has a number of industrial applications. The automobile industry relies heavily on platinum to make catalytic converters for cars, buses and trucks to reduce emissions. It’s also used in turbine engines, medical devices, computers, and the petroleum industry.
While gold is produced in dozens of countries around the world, almost all of the world’s platinum is mined only in two countries – South Africa and Russia. Any political or economic difficulties in these countries could have a significant impact on the price of platinum. Or the two countries could join hands to artificially inflate the platinum prices.
Platinum has a much wider application in the industry vs gold. So, its value depends on the laws of supply and demand rather than the sentiments of investors. It behaves like other industrial metals such as silver and aluminum.
The value of platinum correlates to the performance of the wider economy. If the economic and political conditions are stable, the industrial demand for platinum shoots up. So do its prices. In times of poor economy, demand for vehicles, turbine engines, and heavy machinery declines. It causes platinum prices to fall.
The auto industry also affects platinum prices because it accounts for nearly half of the world’s platinum consumption. When Volkswagen’s emissions scandal came to light in 2015, demand for diesel engines started declining. As a result, platinum prices fell as much as 15% within three months.
Gold vs platinum: Price and liquidity
Over the long-term, gold and platinum tend to move in the same direction. But there are factors that affect each precious metal independently. The value of platinum depends on supply and demand while that of gold relies heavily on investor sentiments.
Gold’s status as a safe haven pushes its prices up during periods of economic uncertainty. And platinum prices fall because of declining demand. The reverse is observed during periods of sustained economic growth.
As of this writing, platinum is trading at $986.31 per ounce vs gold’s spot price of $1,568.40. In the present economic scenario, platinum is vulnerable to fluctuations in both supply and demand. Gold prices have gone up because of the US-China trade tensions and poor global economic growth.
The price differential between the two precious metals is an inter-commodity spread. Sometimes gold trades at a premium to platinum, and sometimes the white metal commands a premium. The gold-platinum ratio not only helps us understand the relationship between the two, but also offers clues as to the market sentiment. Platinum is cheaper than gold if the ratio is above 1, and vice-versa.
Both gold and platinum are highly liquid assets. You can easily trade them for cash. They both trade in over-the-counter and physical markets around the world.
Gold vs platinum: Which is more precious?
Investment opportunities arise when there are divergences in the gold-platinum ratio (price of gold divided by price of platinum). Historically, the ratio has been below 1, meaning the price of platinum has been higher than gold. But currently, the ratio is around 1.6, which means platinum is cheaper and more attractive.
Both gold and platinum are precious metals, but there are factors that independently affect each of them. And that’s where platinum becomes unreliable. Gold trades based on investor sentiment, not on supply and demand. It’s relatively less volatile than platinum.
Another aspect to consider is that only two countries – South Africa and Russia – produce platinum. What happens in these two countries will have an impact on platinum prices worldwide. When South African mines faced power delivery problems, platinum prices skyrocketed to $2,252 per ounce in March 2008. By November 2008, it had tumbled to $774. Turbulence in the auto industry could also affect platinum prices.
We haven’t seen such erratic swings in gold prices. Dozens of countries including China, the US, Australia, India, Canada, and others produce the yellow metal. A supply issue in one country is unlikely to have a huge impact on prices worldwide. Despite the gold vs platinum debate, the former remains the preferred store of value. But the yellow metal logged an 18.9% return in 2019. Given its relative valuations, investors can look at alternative precious metals like platinum.
Disclosure: I own some physical gold. No other positions and no compensation