How to Invest in Platinum
Platinum is one of the rarest precious metals on the planet, which has a number of industrial uses in the modern world. In this article, we explain how to invest in platinum and analyse a number of the different methods of gaining exposure to the precious metal. Keep reading to find out more!
Table of Contents
Investing in Platinum
Although, when it comes to precious metals, most will immediately think of gold, platinum is actually far scarcer. As well as being highly sought after for use in the manufacturing of jewellery, platinum also has a number of other uses.
Most platinum demand comes from the automotive industry, with the precious metal being a crucial component in catalytic converters, which are used to help reduce emissions. It also has a number of industrial uses, such as in the production of medical products, some types of fuel cells and chemicals.
Although its price has lagged behind many other metals in recent years, a shortfall in the supply of platinum in 2024 is expected to drive up prices. This is the second year running in which demand for the precious metal has exceeded supply.
What Affects Platinum Prices?
Before looking at how to invest in platinum, it is important to understand what affects its price. As with any freely traded good, the price of platinum is determined by levels of supply and demand in the market.
Consequently, it is a good idea to familiarise yourself with what drives platinum demand, some of which we identified in the previous section, as well as understanding where platinum is produced.
The table below shows these five largest producers of platinum in descending order. Between them, these five countries account for more than 97% of global supply.
However, the vast majority of global supply comes from just one of these countries, South Africa. In 2023, it accounted for almost 70% of total global supply and has almost 90% of the world’s reserves of platinum group metals. Therefore, any changes in output from South Africa could have a large impact on prices.
How to Invest in Platinum
When considering investing in platinum, your first thought may be to simply buy the physical metal. However, investing in physical platinum can present a number of logistical issues, not least of all storage.
Fortunately, there are a number of alternative options available for those seeking to gain exposure to the precious metal, the best of which will depend on the individual in question.
We can split the different methods into two categories, one for individuals who are interested in trading platinum over a shorter time horizon and the other for those who are interested in investing in platinum.
Those looking to trade platinum can use financial derivative products, such as platinum futures contracts and Contracts for Difference (CFDs) to speculate on the precious metal’s price. Those looking to invest in platinum may choose to do so by investing in platinum stocks or Exchange-Traded Funds (ETFs).
In the following sections, we will examine each of these methods of trading and investing in platinum in a bit more detail.
Platinum Futures
Platinum futures represent an agreement between a buyer and a seller to exchange platinum at a predetermined price on a fixed date in the future. Futures contracts trade on futures exchanges and have standardised contract specifications.
Platinum futures can be traded on margin and can be used by traders to speculate on platinum prices in both directions without ever having to take ownership of, or deliver, the physical commodity. However, there are a couple of things to bear in mind when trading platinum futures.
- Platinum futures have an expiration date before which traders must either exit the position or roll it over to another month, unless they wish to settle the contract at expiration. This means that futures contracts are less appropriate for longer-term speculation.
- The price of futures contracts is influenced by how long is left until expiration, meaning that traders must take this into account when trading platinum futures.
Platinum CFD Trading
CFDs represent an agreement between two parties to exchange the difference in the price of an asset between when the contract is opened to when it is closed. Like futures, platinum CFDs allow traders to speculate on the price of platinum without taking ownership of, or delivering, the underlying asset.
CFDs also benefit from the use of leverage, which lets traders access larger position sizes with a smaller deposit. Whilst this can magnify potential gains, it also has the same magnifying effect on losses and must, therefore, be used with caution.
However, unlike futures, CFDs do not have an expiry date, meaning that platinum CFD traders are able to hold their position open for as long as they wish (subject to margin requirements). Nevertheless, platinum CFD trading is liable to swap fees, which is an interest rate applied to positions held overnight.
Platinum Stocks
For those seeking longer term exposure to platinum prices, an option for investing in platinum is by buying shares in platinum mining stocks, which tend to perform well when platinum prices are rising.
Mining companies tend to mine more than one type of metal, which means that their shares are likely to provide exposure to other metals besides platinum. Whilst this offers diversification, which is an important aspect of risk management, it may not appeal to investors who are strictly looking to invest in platinum.
It’s also worth bearing in mind that mining stocks are cyclical. They tend to perform well when the economy is growing but can suffer during a downturn when demand for raw materials typically decreases.
An example of a platinum mining stock available to investors is Platinum Group Metals Ltd, a Canadian company which jointly operates the Waterberg Project, a large scale platinum group metal resource in South Africa.
Platinum ETFs
For those interested in investing in platinum, but who don’t want to pick stocks, a platinum ETF could be an option.
Platinum ETFs track the value of platinum either by holding the physical commodity or by using financial derivatives. This means that a platinum ETF can allow investors to gain exposure to the physical commodity without having to deal with the logistical headaches involved in buying or storing the precious metal.
The largest platinum ETF is the abrdn Physical Platinum Shares ETF, which has more than $1 billion of assets under management at the time of writing, and an annual expense ratio of 0.60%.
Trade or Invest in Platinum with Admirals
With Admirals, it is possible to invest in platinum stocks with an Invest.MT5 account. It’s also possible to trade platinum CFDs as well as CFDs on numerous other commodities with the Trade.MT5 account. Click the banner below to find out more and to register for a trading account with Admirals today:
FAQ
Where is platinum mined?
The vast majority of the world’s platinum is mined in South Africa, with the country accounting for almost 70% of total global supply in 2023. Russia, Zimbabwe, Canada and the United States are also platinum producing countries.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
