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How (and Why) to Invest in Platinum

Platinum is a precious metal with a wide variety of industrial uses. It’s also commonly used in jewelry and dental work. And more recently, platinum has been used by many as an alternative investment class. But is platinum a good investment option?

Platinum (Pt) is extremely rare, even more so than other precious metals. For instance, the annual mining output of gold (Au) is approximately 15-20x higher than the annual output of platinum.

Thus, the metal is quite scarce, which makes it valuable. And unlike gold, which is used relatively little in industrial applications, platinum has a huge amount of industrial demand which helps prop up its price.

Pt is certainly rare – but does that alone make it worth investing in? And if you want to, how do you invest in platinum?

Investing in platinum

Disclaimer: This page is intended for informational purposes only. It should not be considered as financial or investment advice. You should speak to a certified financial professional to determine the best investment mix for your specific situation.

Platinum as an Investment

The concept of investing in platinum is a relatively new one. While gold and silver have been trusted stores of value for thousands of years, platinum does not have the same monetary history.

Today, platinum is popular among precious metal investors. Even so, platinum investment makes up less than 10% of annual demand for the rare metal. The bulk of demand comes from autocatalyst use in the automotive industry (40%), jewelry (30%), and industrial (20%), based on 2016 data.

Source: Johnson Matthey

That said, platinum appears to be undervalued currently, which has convinced a lot of investors to jump into the mix. Investors also appreciate that the metal has relatively stable industrial and jewelry demand, which helps to support price levels.

But is platinum a good investment? One thing is clear: platinum can be a volatile asset class.

Source: Kitco.com

 

Platinum’s combination of extreme rarity and strong industrial demand have pushed its price through the roof multiple times. It topped out at nearly $2,200 per oz in 2007, and again hit over $1,800 in 2010, before falling to sub-$1,000 today.

Moving forward, platinum has both positive and negative catalysts from an investment standpoint. On the plus side, jewelry and industrial demand is fairly steady, overall demand typically exceeds supply, known stores of platinum are very small, and the metal is very expensive to mine.

Also, platinum is historically more valuable than gold. Over the long-term it’s traded at an average price of 1.2 times the price of gold. Today, it trades around 0.65 times the price of gold. For some, this is seen as a catalyst for appreciation in the price of platinum; for others, merely a sign that times have changed.

On the other hand, platinum prices face significant headwinds. The main concern is slowing autocatalyst demand, due to the automotive industry’s shift away from diesel and gasoline engines. While electric cars do use platinum, the required amounts are lower than combustion engines (and particularly diesel engines, which are falling out of favor).

This has contributed to a negative investor sentiment, which has further influenced falling platinum prices.

To sum up – Platinum is an exceedingly rare precious metal, with a wide variety of uses in industry and jewelry. It currently seems to be trading quite cheaply, which could make it an attractive precious metal investment opportunity. At the same time, changes in the automotive industry could continue to influence platinum prices in a negative way.

In any case, investing in platinum may be useful in further diversifying your portfolio. And if you already invest in precious metals, you may find platinum’s relatively low price attractive

How to Invest in Platinum

To add platinum exposure to your portfolio, there are three main options:

  1. Buy physical platinum bullion from a trusted dealer like Bellevue Rare Coins
  2. Invest in platinum ETFs like the ETFS Physical Platinum Shares (PPLT)
  3. Trading platinum futures on the futures market

Most people who invest in platinum bullion also like to invest in other precious metals. We put together a guide to investing in precious metals like gold, silver and more that you can read through!

In general, we do not recommend trading platinum futures unless you are a highly sophisticated investor with lots of experience in the futures market.

So, that leaves two options: physical platinum, or platinum ETFs. What’s the “best” way to invest in platinum? There are pros and cons to each method.

Platinum ETFs work by buying physical platinum and storing it in secure vaults. They then sell shares in the ETF, which track the spot price of platinum (less the cost of management fees). So when you buy a platinum ETF, you own physical platinum on paper, but you can’t actually take possession of the precious metal. Also, keep in mind the management fees – PPLT has an annual expense ratio of 0.60%, which can add up quickly.

Physical platinum, on the other hand, can be purchased at local coin dealers like Bellevue Rare Coins. It’s a hard asset, which you can hold in your hand and transport easily. It’s also outside of the modern financial system, which appeals to some investors.

Physical platinum bullion and coins are available in a variety of shapes and sizes, from as little as 1/10oz rounds to 10oz bars. They will typically carry a small premium over spot price, but you won’t have to pay annual management fees like you would with a platinum ETF.

While there are pros and cons to each method, we believe that anyone interested in platinum investment should hold at least some physical platinum. Here’s how to go about doing that!

 

Investing in Platinum for Retirement

If you’re investing in platinum for part of your retirement portfolio, there are some tax implications to consider. The tax treatment of bullion is different than most investment classes, so ideally you should consult with a tax pro to get advice.

Perhaps the best way to invest in platinum for retirement is through a self-directed IRA program. These programs let you invest in physical platinum bullion, while getting the same tax perks as a normal IRA retirement account.

Bellevue Rare Coins offers self-directed IRA programs. Click here to learn more about our precious metal IRA program!

How to Invest in Platinum Bullion

There are only a handful of platinum coins and bar options – far fewer than the selection for gold and silver. Even so, there are some important things to keep in mind when investing in physical platinum.

 

Popular Platinum Bullion Investments

American Platinum Eagle – the most popular physical platinum bullion coin is the American Platinum Eagle. It contains .9995 pure platinum, and comes in 1 troy oz, as well as 1/10 oz, 1/4oz and 1/2oz sizes. The Eagle is the official Platinum coin of the United States Mint, and is produced every year. It carries a premium over spot price, but it is highly liquid and one of the most recognizable forms of physical platinum. Bellevue Rare Coins typically carries American Platinum Eagles.

Platinum Canadian Maple Leaf – Our neighbors up north produce the second most common platinum coin; the Maple Leaf. This too consists of .9995 pure platinum, and comes in the same size options (1/10oz, 1/4oz, 1/2oz, and 1oz). Bellevue Rare Coins often has platinum Maple Leafs in stock in Seattle, and we can always order them as well!

Platinum Bars – Various private and government mints produce platinum bars. These are typically in 1oz sizes, although 5oz and 10oz bars are also available. They tend to have a lower premium than the bullion coins, although they are less commonly available.

Tips for Buying Platinum Bullion

If you’ve decided to invest in platinum bullion, here are some important tips to keep in mind.

Proper Sourcing – It’s vital to buy platinum from a trusted bullion dealer. Do not try to buy from Craigslist or pawn shops, as there’s a high likelihood of scams and fake coins. We recommend coming into Bellevue Rare Coins (we have locations in Seattle, Bellevue, Tacoma, Issaquah and Lynnwood, Washington) to work with a trusted Pacific Northwest platinum dealer.

Safe Storage – Once you have the platinum in-hand, you need to safely store it. Some good options include bank safe deposit boxes and well-hidden home safes. Be sure to keep quiet about your precious metal investments – you do not want word getting out that you have high-value physical assets in your home!

Liquidity – Keep in mind that different types of platinum investments will be more or less liquid, meaning easy to sell/trade. Probably the most liquid is the American Platinum Eagle, which almost any coin shop will purchase for around spot value. On the other hand, bars from unknown mints, or large size bars, will be harder to sell. You’ll want to keep your long-term plans in mind when purchasing platinum bullion.

Premium Over Spot – When you purchase platinum bullion or coins, you will typically pay a small premium over the spot value of the coin. Premiums will vary, but typically the more liquid coins (like the Eagle) have the highest premiums. But, most consider the cost to be well worth it, given the highly liquid and recognizable nature of these coins.