The investment landscape is incredibly vast and diverse, but one of the oldest and most popular choices for investment has been precious metals, particularly for those who want to mitigate some of the risks and uncertainty that come with turbulent economic times. When you look at precious metals for investment, as opposed to trading or speculation, the two most sought-after options have typically been gold and platinum. However, making the decision to invest in precious metals is far different from deciding how you’re going to invest, and in what, which can be an incredibly personal choice.
On one hand, gold has long been admired, even revered, for its lasting value, historical significance, and unique physical properties. It’s often called one of the few safe-haven assets, and its appeal lies in its ability to retain value over long periods and through economic turmoil. The attraction of gold isn’t just based on the financial stability either, but on its ongoing cultural and symbolic significance, which spans millennia and countless civilizations. This has led gold to have one of the most solid track records of being a reliable method of asset storage.
On the other hand, platinum, though much less famous than gold, also holds a unique attraction for investors. It’s much rarer than gold, and it also has more significant industrial applications, particularly in the automotive industry’s demand for catalytic converters. This more substantial industrial demand adds a factor to consider, and unlike gold whose value is largely created by the investment and jewelry demand, platinum prices can be tied closely to supply and demand dynamics in the industrial sector.
We’re going to explore both of these metals in-depth, in the context of investment assets. We’re going to dig into their historical context, as well as the economic factors that impact their prices or value, and the risks that may be involved in investing in either one. By looking at their market performance and outlook on relatively even footing, we’re going to create the most comprehensive analysis of these two metals to help investors make the most informed decision possible.
Precious Metal Investments: History & Current Trends
As we mentioned, investing in precious metals like gold and platinum has a history that dates back centuries, and isn’t just a tale of wealth and luxury adornment, but also one of the enduring value of both metals across a wide range of economic conditions.
Gold’s history as a store of value is as old as civilization and written history, and from ancient Egyptian god-kings to the modern central banks, gold has been revered both for its beauty and relative scarcity. Historically, it’s been a monetary standard for countless countries, and its value has been a hedge against inflation and loss of currency value for countless investment portfolios. In times of market turbulence or economic uncertainty, investors consistently turn to gold, as evidenced by the price surges accompanying various financial crises.
Platinum, however, while less prominent in the annals of history and investment, has nonetheless carved out its niche. The rarity of platinum is greater than that of gold, and its industrial utility is far greater, having ultimately shaped its overall investment profile. In the Western world, platinum was more or less unknown until the 18th century, when its use in jewelry, automotive applications, and other industries caused its value to grow significantly. This industrial demand is substantially based on the demand by manufacturers for catalytic converters. This industrial demand is also a major shaping force in the value, which makes it intrinsically different from how gold is valued.
Currently, the trend is for gold to be a popular investment during times of economic or geopolitical tension and general market volatility, with its price typically moving inversely to the stock market at large. Platinum faces challenges with price volatility due to changing demand levels in the investment and industrial sectors, and the ongoing shift toward electric vehicles which use less platinum, are factors to consider when considering potential future demand.
Understanding The Differences In Gold Vs. Platinum Investment
For anyone considering a gold vs. platinum investment, it’s critical to understand the distinct characteristics and qualities of both gold and platinum. Each has unique attributes that change how they perform in the market and subsequently, in your portfolio.
Gold
Gold is usually considered to be one of the defining symbols of wealth and is considered a haven for assets during even the most significant market or economic instability. Some of the primary characteristics of gold as an investment include:
- Stability: One of the most commonly referenced benefits of investing in gold is its relative stability. It’s far less volatile than many other assets, particularly over long periods, and this stability can be incredibly attractive during economic downturns, recessions, depressions, or periods that experience higher rates of inflation.
- Liquidity: Another substantial upside to investing in gold is that it enjoys very high liquidity, meaning it can be bought and sold very easily due to the constant, nearly universal demand. This makes it a good option for investors who feel they may need to quickly convert their investment assets to cash.
- Universal Value: The raw value of gold is recognized around the world, and unlike fiat currencies or other assets, gold’s worth isn’t tied to any particular country’s economic performance or policy, making it one of the very few forms of wealth accepted globally.
Platinum
Platinum, while similar to gold in some aspects, is also very different in others, due in part to its unique characteristics. Here are some of the ways it’s quite different:
- Rarity & Industrial Demand: Platinum is rarer than gold, which can drive a far higher price potential, but that price potential is also intrinsically linked to industrial demand and supply, which is greatest from the automotive sector.
- Volatility: When compared to gold, platinum is generally more volatile, but then again next to gold, most things are. This volatility is due in no small part to platinum’s large reliance on the automotive sector for demand, and as the auto sector shifts toward newer transportation technologies, platinum may become less useful.
- Economic Sensitivity: Since the bulk of platinum demand lies with the auto sector, platinum’s value is tied more closely to the general health of the global economy, and during periods of growth there will be higher prices, while in periods where demand wanes, the price will fall quickly.
Comparative Analysis
Head to head, gold and platinum investments offer distinctly different investment experiences due to their very different risk and return profiles. Gold’s price is influenced by investment, jewelry demand, and market turbulence, which makes it much more stable than platinum. In contrast, platinum’s price is closely tied to industrial demand, and while this offers risk and volatility, it also has the potential for higher returns.
Strategies for Practical Investing
Gold vs. platinum investment typically involves more than just having a passing understanding of the market trends and economic factors. It also requires an approach founded on strategy and practical investment methods. The method of investment will play a crucial role in achieving your long-term financial objectives, and each method, whether it’s physical metal ownership, stocks in mining companies, gold ETFs, or futures speculation, comes with a unique set of benefits, considerations, and potential drawbacks.
Physical Metals
Investing in physical gold and platinum is typically what people think of when they think of investing in precious metals. Usually, images of coins, bars, and ingots come to mind, locked away in a safe or vault. This approach is often favored for the simplicity and ownership security it can offer, but the costs and logistics of storing larger amounts securely can shift away from practicality.
Stocks & ETFs
Many investors want exposure to gold and platinum prices and values, without the need or desire to store physical metals, and in these cases, investing in stocks for mining or processing companies or in ETFs (exchange-traded funds; like mutual funds but traded on the open market) can be a more practical and accessible strategy for retail investors. One drawback, however, is that this approach ties your investment to the market performance much more closely than the typical gold investor would prefer, but each investor knows their risk tolerance the best.
Futures Contracts
Futures contracts are a far more advanced strategy for investors looking at getting into gold or platinum, and they involve speculation on future prices. This is a very advanced method of investing, however, and typically suited only for investors who have extensive experience with the complexities of trading futures and who are comfortable with the drastically higher risk profile.
Liquidity vs. Long-Term Value
One of the biggest considerations in practical precious metal investment is the need to balance a degree of liquidity with the desire to preserve the value of assets, long-term. Gold is far more liquid, which makes it easier to convert to cash, but platinum’s rarer nature and substantial industrial demand can offer long-term opportunities for the investor who doesn’t mind the increased volatility.
Risk Assessment and Diversification
Gold vs. platinum investment carries a very different risk profile, and gold’s value is typically much less volatile and stable over long periods, which makes it a popular choice with investors, especially those looking for a haven during instability or turbulent economic times. The price is influenced most heavily by factors like geopolitical tensions, fiat currency values, and inflation rates, frequently giving a place as a risk hedge in portfolios.
Platinum creates a far different risk dynamic, however, since its price is usually more volatile, being heavily influenced by industrial demand from the automotive manufacturing sector. The industrial demand, while holding the potential for lucrative returns, is also tied closely to the economic cycles.
Diversification Benefits
Including gold and/or platinum in an investment portfolio can create substantial diversification benefits, which is a key factor for building portfolio resilience. Diversification is the main key though, and spreading investments across the various asset classes can help reduce exposure to risks associated with one method or another.
Gold, with its history of maintaining value and being decidedly decoupled, nearly inversely coupled, to the stock and bond markets, can help act as a counterbalance during downturns or times of instability. Its ability to retain value across a wide range of economic circumstances and scenarios makes it a powerful choice for diversification.
Platinum, while more volatile, can offer substantial potential for growth in the right diversified portfolio, especially during times of robust economic expansion or industrial demand peaks. The unique attributes mean that it doesn’t always move with gold, or with stocks, putting it in a unique spot in your diversification strategy.
Strategic Allocation
Since gold and platinum operate in very different spaces and very different ways as investment methods, strategic allocation will be key to a robust portfolio but should be based overall on your individual investment goals, personal risk tolerance, and market outlook. More conservative investors tend to have a greater allocation to gold investment, while those with a bit more appetite for risk and a heavier focus on growth might consider a greater allocation to platinum.
Viability of Gold Vs. Platinum Investment for the Future
Gold has, historically, been a reliable store of value and the future viability to continue is strong. It’s considered a safe-haven asset by most of the world, which makes it important in the face of economic uncertainties and fluctuations in national currencies. Additionally, advancements in healthcare and other fields may drive more demand in the future.
The future outlook for platinum is a bit more complex and is largely at the mercy of industrial applications and technological advancements. The shift toward electric vehicles, which currently use less platinum than internal combustion vehicles, poses a challenge for those seeking to keep platinum demand, and prices, high. However, the inclusion of platinum in areas like hydrogen-based fuel cell technology may open new doors for industrial uses.
Wrapping Up
As you can see, both gold and platinum have their place in a robust and well-rounded investment portfolio. By assessing their benefits and potential risks, investors will be able to make informed decisions about their investments that more closely align with their long-term investment goals.
