Why Platinum is Cheaper than Gold

You might be puzzled to see platinum—rarer than gold—trading for less on the market. Our exploration on why platinum is cheaper than gold uncovers the intertwining factors of industrial demand, mining challenges, and economic dynamics that shape today’s precious metal prices.

Key Takeaways

Platinum’s Price Puzzle: A Rarity That Costs Less

Mining process for platinum

Unraveling the market dynamics that shape the prices of precious metals is essential to comprehend why platinum cheaper than gold is a reality. Even though platinum is 30 times rarer than gold, it trades at a significantly lower price. This price discrepancy can be attributed to a combination of factors including industrial demand, mining costs, and supply dynamics.

Platinum is currently trading at approximately $1070 per ounce compared to gold, which trades at around $2000 per ounce. A contributing factor to the lower platinum prices is the high costs of mining it, as it is found deeper in the earth’s crust compared to gold. In spite of its rarity and the limited availability, the current platinum price is at one of its lowest points since 2020.

The Industrial Metal Demand Factor

The price of platinum, like that of other precious metals, is significantly influenced by industrial demand. Platinum’s primary industrial application is in the production of catalytic converters for the automotive industry. These devices, which reduce harmful emissions from vehicles, require platinum due to its unique chemical properties.

Therefore, changes in the automotive industry, like a production shift or altered emission standards, can drastically alter the demand for platinum, subsequently affecting its price. The recent shift towards electric vehicles, which do not require catalytic converters, has been a cause for concern among investors, as this could potentially lead to a decrease in platinum demand.

Mining Costs and Availability

Mining platinum is a complex and costly process. Platinum deposits are located deep underground, requiring miners to drill and blast the rock to access the precious metal. The average cost of mining one ounce of platinum is approximately $1,110, reflecting the complex extraction process and higher expenses involved.

Moreover, the global availability of platinum is significantly lower than that of gold. For instance, in 2022, the market witnessed the production of 3,100 metric tons of gold compared to only 190 metric tons of platinum. This scarcity, coupled with the high mining costs, contributes to platinum’s high price per troy ounce, making it a more costly investment option compared to gold.

Supply Dynamics

The supply dynamics of platinum add another layer of complexity to its pricing. Political developments and worker strikes can significantly disrupt platinum supply, leading to price fluctuations. In fact, worker strikes have been known to impact up to half of the global platinum supply, resulting in substantial price increases.

The primary platinum producing countries include:

Any changes in the political or economic landscape in these countries can potentially affect the global supply of platinum, and consequently, its price.

Investment Appeal: Gold vs. Platinum

Comparison of gold and platinum as investment options

When it comes to investing, platinum and gold are two popular options to consider. Here are some key points to keep in mind:

This should not lead to the disregard of platinum as an investment. In reality, its greater volatility and potential for higher returns make it an appropriate investment for risk-takers. However, it’s important for investors to understand and consider the unique factors influencing the platinum market before diving in. Some key factors to consider include:

By taking these factors into account, investors can make more informed decisions about investing in less platinum.

Market Liquidity and Volatility

Gold’s higher liquidity is largely due to its widespread global trading and well-developed market, especially in the realm of physical gold. This high liquidity offers greater stability and reduced risk for individuals engaged in long-term investment strategies, making gold a popular choice for investors worldwide.

On the other hand, platinum’s higher volatility can be attributed to its smaller market share, lower trade volume, and sensitivity to economic cycles and industrial demand. While this higher volatility can lead to larger price swings, it also offers the potential for higher returns for risk-tolerant investors.

Perceived Material Value

Historical and cultural factors contribute to gold’s perceived value over platinum. Gold has been coveted, worshipped, and used as a symbol of wealth for centuries, which adds to its allure and perceived value. In contrast, platinum, despite its premium status, often commands a lower market value compared to gold and silver.

This discrepancy in perceived value can significantly affect the investment appeal of these precious metals. While gold’s historical significance and cultural value might make it a more attractive investment, savvy investors might see the underrated value of platinum as an opportunity for potential growth.

The Jewelry Equation: Platinum and White Gold vs. Yellow Gold

Platinum and white gold jewelry

Platinum and white gold have emerged as popular alternatives to traditional yellow gold in the jewelry market. Despite platinum’s higher price point, it offers unique benefits and characteristics that make it a sought-after choice for jewelry. Platinum’s lustrous and radiant appearance, similar to white gold, combined with its durability, makes it a favored option for frequently worn jewelry such as engagement rings.

White gold, on the other hand, is composed of approximately 75% pure gold and offers a more affordable option for those seeking the look of platinum without the higher price tag. However, white gold may contain nickel, which can potentially cause allergic reactions, making platinum a safer choice for those with sensitive skin.

Hypoallergenic Properties and Purity

Platinum’s hypoallergenic properties make it a desirable choice for those with sensitive skin or allergies. These properties are attributed to platinum’s high level of purity, which allows it to withstand high temperatures and resist chemical attacks, reducing the likelihood of skin irritation.

Compared to white gold, platinum is purer and safer for those with allergies. Purity in precious metals is typically measured using millesimal fineness—platinum jewelry often contains 950 parts of platinum per 1000, indicating its exceptional level of purity.

Trends in Precious Metal Jewelry

Recent trends in precious metal jewelry show an increasing demand for platinum and white gold. The demand for platinum jewelry has grown significantly over the years, with a notable 15% increase in retail sales in 2021.

Millennial women in their 30s, who often purchase gold jewelry for themselves, particularly favor white gold. This demographic is attracted to the modern aesthetic of white gold and values its combination of timelessness and style.

The Future of Platinum: Electric Vehicles and Green Technology

Platinum in electric vehicle technology

The future of platinum is as exciting as it is uncertain. As the automotive industry shifts towards electric vehicles and green technologies, the demand for platinum, particularly for its use in catalytic converters, is expected to decrease. However, the demand for platinum in other industrial sectors, such as healthcare and electronics, remains strong.

In addition, studies are currently underway to explore the potential use of platinum in next-generation battery technology and hydrogen fuel cells. If these studies prove successful, they could open up new avenues of demand for platinum, potentially increasing its value in the future.

Shifts in the Automotive Industry

The automotive industry plays a significant role in shaping the demand for platinum. Platinum is used in autocatalysts, sensors, and fuel-cell vehicles, accounting for nearly 38.3% of the total global platinum consumption.

The shift towards electric vehicles, however, poses a challenge for the platinum market. As electric vehicles do not require catalytic converters, the demand for platinum could potentially decrease, leading to a decline in its price. However, there are viable alternatives to platinum in catalytic converters, including palladium and rhodium.

Platinum in Green Technologies

Despite the uncertainties surrounding the automotive industry, the future of platinum looks promising in the realm of green technologies. Platinum plays a pivotal role in the production of hydrogen fuel cells, acting as a catalyst to facilitate efficient reactions.

There is an anticipation of a shift in the demand for platinum in the near future due to the emergence and proliferation of these green technologies. As these technologies, particularly those aimed at reducing vehicle emissions, become more widespread, the demand for platinum is projected to increase over the next 10-20 years.

Comparing Precious Metal Investments: Strategies and Risks

Diversifying investment portfolio with platinum

Understanding the various strategies and risks involved is vital when considering precious metal investments. Platinum offers several investment opportunities, including purchasing physical platinum, investing in platinum ETFs, or buying platinum futures.

However, one should be aware that investing in platinum, especially in options and futures, is usually intricate and risky, and is generally not advisable for novice investors. As with any investment, potential platinum investors should ensure that their investment aligns with their long-term financial objectives and risk tolerance.

Platinum Options and Futures

Platinum options and futures are financial instruments that can provide investors with exposure to the metal’s price movements. Platinum options are contracts that give the holder the right, but not the obligation, to buy or sell a predetermined quantity of platinum at a prearranged price before the option’s expiration.

In contrast, platinum futures are contracts that require the involved parties to buy or sell platinum at a specified price on a future date. While these instruments offer flexibility and potential leverage, they come with risks including price volatility, market illiquidity, and transaction costs. Moreover, the price of platinum futures is influenced by shifts in demand, geopolitical occurrences, and investor sentiments and speculation.

Diversifying with Platinum

Incorporating platinum into an investment portfolio can be an effective way to diversify holdings and potentially enhance returns. Platinum can help:

However, investors should also be aware of the volatility of the platinum market and its impact on portfolio performance. While platinum can serve as a hedge against market turmoil, its value relative to gold may decline during periods of economic uncertainty, influencing investment decisions.

Platinum and Economic Indicators

The price of platinum serves as a barometer of the health of the global economy and industrial sectors. During economic challenges, platinum prices typically decrease due to reduced industrial production and general economic uncertainty.

Furthermore, the price of platinum is significantly influenced by its industrial use, especially in the automotive sector. Any transitions towards environmentally sustainable technologies such as electric vehicles may result in reduced demand for platinum, potentially causing a decline in its price.

Platinum as an Economic Barometer

Fluctuations in the price of platinum can offer insights into the state of the global economy. Factors such as:

all serve as indicators of global economic well-being.

Moreover, platinum prices reflect economic indicators such as GDP growth, inflation rates, and interest rates, which have an impact on the performance of platinum and serve as a reflection of the overall health of the global economy. In periods of economic downturn, the price of platinum typically shows a downward trend, particularly in conjunction with interest rate reductions.

Correlation with Other Metals

The price of platinum often moves in tandem with other precious metals, such as gold, silver, palladium, and platinum coins. This correlation can provide valuable insights for investors, helping them assess market dynamics and make better-informed investment decisions.

Nevertheless, be aware that the correlation between platinum and other metals can fluctuate over time due to variables like market conditions and metal scarcity. During periods of economic uncertainty, platinum’s value relative to gold may decline, potentially influencing investors’ decisions.

Summary

The world of precious metals is a complex one, full of paradoxes and intricacies. Despite its rarity, platinum often trades at a lower price than gold due to a combination of factors including industrial demand, mining costs, and supply dynamics. While gold is often perceived as a safer investment due to its stability and historical significance, platinum’s higher volatility and potential for higher returns make it an attractive option for risk-tolerant investors.

As the global economy and industries continue to evolve, so too will the dynamics of the platinum market. With potential applications in green technologies and a projected increase in demand over the next decade, the future of platinum looks promising. Yet, as with any investment, potential investors should ensure that investing in platinum aligns with their long-term financial goals and risk tolerance.

Frequently Asked Questions

Why is platinum so much less than gold?

Platinum is much less abundant than gold, with only 160 tons of platinum being extracted annually compared to 1,500 tons of gold, making it rarer and therefore less common and more expensive.

Is it better to buy gold or platinum?

In conclusion, it is generally better to buy gold due to its greater liquidity, stability, and established regulated markets. Platinum, on the other hand, tends to be more volatile and sensitive to economic cycles and industrial demand.

Why did gold become more valuable than platinum?

Gold became more valuable than platinum because it is more steadily in demand, especially in industries like jewelry, electrical, and medical, which rely less on economic factors to influence demand and often increase in value during economic downturns. Additionally, gold is generally more liquid and has a well-established market, making it easier for investors to buy and sell quickly.

What are the investment opportunities for platinum?

You can invest in platinum by purchasing physical platinum, investing in platinum ETFs, or buying platinum futures. Consider these options to diversify your investment portfolio.

What is the future of platinum in the automotive industry?

The future of platinum in the automotive industry looks uncertain due to the increasing shift towards electric vehicles, which do not require catalytic converters and could result in a decreased demand for platinum.