How does investing in platinum work? Stocks, funds, and derivatives

Investing in platinum, a precious metal with unique industrial and investment appeal, offers a range of opportunities for investors. From stocks in mining companies and exchange-traded funds (ETFs) that track the price of platinum, to derivatives like futures and options, each investment vehicle provides a distinct way to gain exposure to the platinum market.

This article explores how these options work, their benefits, and risks, helping you make informed decisions in the lucrative world of platinum investing.

What is platinum?

Platinum, a precious metal with a fascinating history and unique properties, has captivated the attention of humanity throughout the centuries. With its silvery shine and exceptional resistance, platinum has played a prominent role in various fields, from jewellery and industrial applications to technology and medicine.

should i invest in platinum

Platinum is a special precious metal and has unique characteristics that make it stand out:

  • Durability and resistance: Platinum is known to be one of the most durable metals. It does not corrode or rust easily, making it a reliable material.
  • Radiant shine: Platinum has an exceptionally bright shine, giving it an elegant and sophisticated appearance.
  • Valuable and exclusive: Platinum is one of the most valuable precious metals in the world. Its rarity and demand in various industries make it a symbol of luxury and prestige.
  • Electrical conductivity: Surprisingly, platinum is also a good conductor of electricity. Its electrical conductivity, while not as high as metals like copper or silver, still makes it valuable for certain specialised uses where its other properties (such as corrosion resistance, stability at high temperatures, and catalytic activity) are important. However, due to its high cost and relative scarcity, platinum is used less frequently in applications purely requiring electrical conductivity and is often reserved for situations where its unique properties offer specific advantages.
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What is platinum used for?

Platinum has a wide range of applications due to its unique characteristics and exceptional properties. Some of the main uses of platinum are:

  • Jewellery: Platinum is highly valued in jewellery manufacturing due to its shine, durability, and resistance to corrosion. It is used for rings, necklaces, bracelets, and others.
  • Automotive industry: Platinum plays a crucial role in the automotive industry. It is used in the catalytic converters of vehicles to reduce the emissions of harmful gases, such as carbon dioxide, nitrogen oxides, and hydrocarbons.
  • Chemical industry: Platinum is used in the production of numerous chemicals and petrochemicals. It acts as a catalyst in oil refining processes, plastic production, and pharmaceutical manufacturing.
  • Electronics: Platinum is used in electronic devices, such as measuring probes, temperature sensors, and electrical components due to its resistance to corrosion and electrical conductivity.
  • Dentistry and medicine: Platinum is used in the manufacture of surgical instruments and medical implants due to its biocompatibility and resistance to corrosion. It is also used in cancer treatments, such as chemotherapy, as some platinum compounds are effective in combating certain types of tumours.
  • Aerospace industry: Platinum is used in the manufacture of rockets, aeroplanes, and satellites due to its heat resistance and ability to withstand extreme conditions.
  • Energy: Platinum is used in hydrogen fuel cells as a catalyst to generate electricity from the reaction between hydrogen and oxygen.

These are just a few examples of the various uses of platinum in different industries. Its rarity and its chemical and physical properties make it a valuable metal in multiple fields.

An interesting point to note is that about 110 tons of palladium and platinum were recovered worldwide from new and old scrap in 2022, including about 40 tons of palladium and 11 of platinum recovered from car catalysts in the United States.

Which countries produce platinum?

World platinum production is concentrated in a few countries. The main platinum producers and their respective production quantities are mentioned below:

  • South Africa is by far the country with the largest platinum reserves in the world and also takes advantage of them as the main global platinum producer, being responsible for approximately 75% of world production. In 2021, the country produced around 142 tons of platinum and 140 tons in 2022.
  • Russia is the second most important producer of platinum in the world, although to a lesser extent than South Africa. In 2021, its production was estimated at 21 tons of platinum and 20 tons in 2022. To put it in context, Russia's platinum reserves are estimated to not even reach 10% of what South Africa has.
  • Zimbabwe is one of the important producers of platinum in Africa and the third in the world. In 2021 and 2022, the country produced around 15 tons of platinum each year.
  • Canada and the United States are two significant countries of platinum production, with 6 and 3.3 tons respectively. The United States achieves its production mainly through the Stillwater mine located in Montana.

These countries represent most of the world's platinum production. It should be mentioned that production figures can vary each year due to various factors, such as price fluctuations, changes in government policies, and economic conditions.

Countries with the largest platinum reserves

The world's platinum reserves are highly concentrated in a few countries. The countries with the largest platinum reserves and the associated information sources are mentioned below:

  • South Africa has the largest platinum reserves in the world. According to data from the U.S. Geological Survey (USGS) of 2021, the identified platinum reserves in South Africa are estimated at around 63,000 tons, which represents approximately 90% of the world's reserves.
  • Russia is another country with significant platinum reserves. According to the USGS, the identified platinum reserves in Russia are estimated at approximately 5,500 tons.
  • Zimbabwe also has significant platinum reserves. According to the USGS, the country is estimated to have around 1,200 tons of identified platinum reserves, the same as the combined reserves of Canada and the United States.

Remember that estimates of platinum reserves can vary according to sources and reports. The figures mentioned are approximate and may be subject to changes as new explorations are carried out and estimates are updated.

How is the price of platinum established?

Like other precious metals, the international price of platinum is quoted in US dollars per troy ounce.

In the country, both individuals and public and private institutions can access international platinum prices through financial platforms and banks that offer investment services in precious metals through financial instruments. These entities provide real-time quotes and facilitate the purchase and sale of platinum at prices based on international markets.

In addition to global factors, the price of platinum can be influenced by local aspects such as production costs, government regulation, taxes, and the profit margins of intermediaries.

It is important to note that platinum prices can fluctuate constantly due to market conditions, so it is essential to track in real-time and consult reliable sources for updated information on the price of platinum.

What factors can affect the price of platinum?

The price of platinum can be affected by a variety of factors. Some of the main factors that can influence the price of platinum are the following:

  • Supply and demand: The relationship between the supply and demand of platinum is a key factor that determines its price. If demand exceeds supply, prices are likely to rise, and vice versa. Factors such as mining production, availability, and demand from various industries can influence this relationship.
  • Global economic conditions: Economic conditions, both globally and regionally, can affect the price of platinum. Factors such as economic growth, financial stability, monetary policies, and macroeconomic indicators can impact the demand for platinum and, therefore, its price.
  • Geopolitical events: Political and geopolitical events, such as international conflicts, changes in government policies, or trade tensions, can have a significant impact on financial markets and, therefore, on the price of platinum. Political uncertainty can generate volatility in prices.
  • Financial markets and currencies: The price of platinum, like other precious metals, is influenced by the movements of financial markets and currency fluctuations. Changes in interest rates, the value of the US dollar or other major currencies can affect the price of platinum.
  • Innovation and substitutes: Technological advances and possible substitutions of platinum in certain industries can have an impact on demand and, ultimately, on the price of the metal. For example, the development of alternatives or improvements in catalytic materials can affect the demand for platinum in the automotive industry.

Any of these factors could interact with each other and generate significant changes in the price of platinum. Investors and those interested in the platinum market should constantly monitor these factors and have up-to-date information to make informed decisions about their investments.

Is platinum more expensive than gold?

The prices of platinum and gold fluctuate independtly due to market conditions. Historically, platinum has often been more expensive than gold, but there have been periods where gold's price has exceeded that of platinum. It's essential to check current market prices for the most accurate comparison. Currently as shown in the graph below, gold is more expensive than platinum.

is platinum expensive than gold

What are the costs associated with investing in platinum?

The costs associated with investing in platinum can vary depending on whether it is an investment in physical platinum or through financial instruments. Below are the costs associated with each of these options:

Investment in physical platinum

  • Purchase price: When acquiring physical platinum, the purchase price must be taken into account, which generally includes the price of the precious metal in the market plus a margin or premium added by the seller.
  • Storage costs: Physical platinum requires a safe place for its storage, such as a safe deposit box or a specialised storage facility. These storage costs can vary depending on the location and service provider.

Investment through financial instruments

  • Costs: When investing in platinum through financial instruments, such as investment funds, ETFs (Exchange Traded Funds) or other similar products, fees may apply. These may include management fees, transaction charges and trading expenses of the financial instrument.
  • Spreads: When trading with financial instruments, some brokers charge spreads. This can affect the return on investment.

The associated costs can vary depending on the provider or financial intermediary used, as well as market conditions and geographical location. It is recommended to research and compare different investment options and providers to evaluate the associated costs before investing in platinum, whether physically or through financial instruments.

How to invest in platinum in the UK?

In the UK, there are several platinum investment options available to investors. Some of the common options include:

Purchase of platinum bars and coins

You can buy physical platinum in the form of bars or coins from precious metal dealers. This option involves considerations for secure storage and insurance.

These platinum products usually have a specified purity content and are considered a tangible way to invest in this precious metal.

Investing in platinum-related stocks

An easier way of investing in platinum is to invest in related stocks. Here are some examples:

  • PLATINUM GROUP METALS ORD SHS
  • SYLVANIA PLATINUM LTD.
  • IMPALA PLATINUM HOLDINGS LTD
best way to invest in platinum

Platinum-related exchange-traded products

There are multiple types of ETPs listed on the London Stock Exchange, such as:

  • SPGS Platinum ETN
  • Invesco Physical Platinum ETC
  • Platinum European Fund
how much is platinum worth

Futures and options contracts

More sophisticated investors can participate in the platinum futures and options markets. However, it is important to have a solid understanding of these markets and an appropriate risk tolerance before participating in them.

It is important to note that, regardless of the investment chosen, investors must conduct adequate research, consult financial advisors, and use reliable platforms to carry out their platinum investments. Each option has its own characteristics, costs, and associated risks, so it is essential to fully understand the details before making any investment decision.

CFDs on platinum assets

Those who want to trade platinum assets in the short or medium term may also opt for CFD trading. In the case of platinum, as it is not one of the most traded precious metals, you should watch the spread because it tends to widen quite a bit.

What taxes apply to platinum investments in the UK?

In the UK, the taxation of platinum investments can vary depending on the form of the investment and how it is held. Here are the general guidelines:

  1. Physical platinum (bars and coins):
    • Capital Gains Tax (CGT): If you sell platinum bars or coins for a profit, you may be subject to CGT. The tax is applied if your total gains in the tax year exceed the annual exempt amount, which may change each year.
    • VAT: Investment-grade gold is VAT-exempt, but this exemption does not extend to platinum. Purchases of physical platinum are subject to the standard VAT rate in the UK.
  2. Platinum ETFs and Shares:
    • Capital Gains Tax: Profits from selling shares in platinum ETFs or mining companies are potentially subject to CGT, similar to physical platinum if your gains exceed the annual exempt amount.
    • Dividend tax: If your investment pays dividends, these may be subject to UK dividend tax, depending on your income tax band and how much dividend income you receive in the tax year.
  3. Futures and options (derivatives):
    • These are also subject to CGT on profits. However, the taxation can be complex due to the nature of these investments. It's important to keep detailed records of transactions for tax purposes.
  4. SIPP (Self-Invested Personal Pension) investments:
    • If you hold platinum investments within a SIPP, the tax treatment is different. Investments within a SIPP grow tax-free, and you won't pay capital gains tax or income tax on dividends. However, tax rules can affect how you can access your pension.
  5. ISA (Individual Savings Account):
    • Investments in platinum ETFs held within an Individual Savings Account are free from UK tax on dividends and capital gains.

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What is the expected return when investing in platinum in the UK?

The expected return when investing in platinum can vary and is subject to multiple factors, such as market conditions, the supply and demand of the metal, as well as the costs associated with the investment. Past performance does not guarantee future results and any investment carries risks.

The return on an investment in platinum can come from two main sources:

  • Price appreciation: If the price of platinum increases after making the investment, it is possible to make profits by selling the metal at a higher price. The appreciation of the price of platinum is influenced by various factors, such as industrial demand, mining supply, global economic conditions and geopolitical events.
  • Dividends or other forms of passive income: If you invest in financial instruments related to platinum, such as funds or stocks, you may be eligible for passive sources of income like dividends.

It is important to note that the expected return can vary depending on the investment period, the strategy used, and the associated costs. In addition, it is essential to consider the associated risks, such as market volatility, price fluctuation, and changes in economic conditions.

It is recommended that investors interested in investing in platinum conduct a detailed analysis, seek professional financial advice, and consider their risk tolerance and investment objectives before making investment decisions.

What can be done to avoid risks when investing in platinum?

To avoid risks when investing in platinum, the following measures can be taken:

  • Education and research: Before investing in platinum, it is essential to study the subject and understand the key aspects of the metal, its market, and the factors that can influence its price. Conducting thorough research and staying abreast of relevant trends and events can help make more informed decisions.
  • Portfolio diversification: All capital should not be concentrated in a single investment. Diversifying the portfolio is an important strategy to reduce risk. In addition to investing in platinum, considering the inclusion of other assets, such as stocks, bonds, or additional precious metals, can help mitigate the specific risks associated with a single investment.
  • Professional financial advice: Having the advice of a professional financial advisor or an experienced investment advisor can be beneficial. An investment expert can help assess the risk profile, establish appropriate investment objectives, and provide personalised recommendations based on individual circumstances.
  • Risk and volatility analysis: Evaluating the risk and volatility associated with investing in platinum is essential. Understanding the volatile nature of precious metal prices and possible market fluctuations can help establish realistic expectations and make informed decisions.
  • Continuous monitoring and management: It's not just about making the initial investment, but maintaining continuous monitoring and management of the platinum investment. Monitoring changes in the market and adjusting the investment strategy as needed can be key to avoiding risks and seizing opportunities.
  • Consider liquidity: Evaluating the liquidity of platinum and the ease of converting it into cash when necessary is important. Taking into account the ease of buying and selling, settlement times, and the availability of liquid markets can help ensure that the investment in platinum is flexible and accessible.

Learn more about investing in commodities

Investing in platinum: summary

Remember that every investment carries risks, and it is important to be prepared to assume potential losses. Before making any investment decision, it is recommended to carry out a detailed analysis, assess the risks, consult with financial professionals to make informed decisions, and make sure to choose one of the best commission-free brokers to keep your costs low.

FAQs

How does the price of platinum compare to other precious metals?

Platinum prices can be higher or lower than gold and silver, depending on market conditions. It's often considered more rare than gold, which can lead to price premiums during times of high demand or supply constraints.

Can I hold platinum in an IRA or pension plan?

In many countries, including the US and the UK, investors can include certain types of platinum investments, like platinum bullion or eligible platinum coins, in their retirement accounts, such as IRAs or SIPPs (Self-Invested Personal Pensions).

Is platinum a good long-term investment?

Platinum can be a good long-term investment as part of a diversified investment portfolio. Its industrial uses and scarcity support its value over time, but investors should be prepared for price volatility and conduct thorough research or consult with a financial advisor before investing.

Invest in gold or platinum?

Investing in gold or platinum depends on your investment goals, risk tolerance, and market outlook. Gold is traditionally seen as a safer investment and a hedge against inflation, while platinum, being rarer and with industrial uses, can offer higher returns but with more volatility. Assess your own financial situation and market conditions before deciding.

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