The recent surge in the price of platinum, a whopping 85% climb this year, may be causing some investors to wonder whether it would be wise to include this precious metal among their “safe haven” assets alongside gold. Before making a decision, it is important to understand the following ways in which platinum and gold compare against each other, and then make an informed decision.
For starters, gold always thrives during periods of economic uncertainty, which explains why gold has risen so much this year in the wake of trade tensions between the U.S. and China, the conflict in the Middle East, the war between Russia and Ukraine, and so many other issues causing economies to catch a cold. In contrast, platinum is largely required for industrial purposes, such as its use in automotive catalytic converters. When there is an economic downturn, the price of platinum slumps as a result of dropping demand.
Another factor you need to consider is that gold has a long track record of being trusted and working as some form of “money.” This is the reason why central banks hold gold as a monetary reserve, while platinum isn’t recognized as a monetary reserve. Central bank purchases played a big part in gold’s ongoing bull-run, and continued purchases by these entities are giving the yellow metal further momentum. In contrast, platinum’s current rise is largely due to increasing industrial demand for the metal amid limited supply.
It is also worthwhile to compare the liquidity levels of these two markets. Platinum’s market is tiny, equivalent to approximately 6% of the quantity of gold mined annually. Because of its tiny size, the market for platinum has limited liquidity while the market for gold is highly liquid. This means that it is a lot easier to convert gold into conventional currencies like the USD while it may be harder to do the same for platinum, especially in times of economic crisis.
That said, you can see that platinum may not be a good fit if you are looking to create a portfolio of safe haven assets. However, this doesn’t mean that you can’t invest in platinum. Currently, the fundamentals show that investing in this metal could be profitable. For example, demand is surging and projections indicate that the market is going to be significantly undersupplied over the coming years, which could cause the price to climb even more than it has already done.
There are many ways to get exposure to platinum in your portfolio. Apart from buying the physical metal, you can consider ETFs linked to the metal or even shares in firms that extract the metal. Many such firms exist, such as Platinum Group Metals Ltd. (NYSE American: PTM) (TSE: PLG). The key is to do your due diligence and make an informed decision regarding the most suitable investment vehicle to get the exposure you need.
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