How Valuable is Platinum
Platinum is a naturally occurring metal with a distinctive and highly desirable white lustre. Its use in jewellery became popularised in the late 19th century by Tiffany & Co. and Cartier. As these household names suggest, platinum is considered an expensive and precious metal.
The prestigious nature of platinum largely comes from its rarity, purity and durability. Platinum is thirty times rarer than gold and is more durable than gold. Platinum symbolises love because of its endurance and strength making it a popular choice for wedding and engagement jewellery. Platinum tends to have a purity level of 90-95 percent in jewellery making, while gold jewellery tends to have a purity level of 75 percent if 18-carat gold is being used. A lower carat weighting will lower the purity level.
There has been speculation around the value of platinum relative to gold because as the gold price has risen to unprecedented highs, the price of platinum remained relatively modest.
Platinum will remain a rare, pure and durable precious metal that is prestigious and desirable in the jewellery industry, but is platinum a good investment?
At its most basic level the value of a luxury item is determined by supply vs demand. To determine whether platinum is a good investment we will analyse the factors driving the supply and demand of this precious metal.
Supply of Platinum.
Platinum is an extremely rare metal meaning its supply is low relative to other precious metals and because of the current flat platinum price, international platinum mines have announced restructuring activities to slow growth and lower platinum supply in an attempt to increase their profit margins. It is projected that the supply of mined platinum will continue to be reduced until 2028. In summary the supply of platinum is already low relative to gold and silver, and it is forecasted that mined platinum supply will become even lower over the coming years due to restructuring activities at platinum mines.
Demand for Platinum.
Similar to gold, platinum demand comes from various industries outside of the jewellery industry. The demand for platinum is driven by three main industries:
- The jewellery industry
- The automotive industry
- Investment.
Albeit far removed from the luxury jewellery industry, the automotive industry is extremely important in driving platinum demand, and hence the price of platinum. Platinum is an important component in the internal combustion engine (ICE) and makes up 40 percent of the demand for platinum. With a shift towards battery powered electric vehicles, there have been concerns for the future demand of platinum. However, more recently there has been an upswing in the demand for hybrid-electric vehicles and a slowdown in the demand for battery electric vehicles. The increasing demand for hybrid-electric vehicles will require the use of platinum in the ICE component of the vehicle, increasing sentiment for the future demand of platinum.
Platinum investment demand is experiencing a boost in growth primarily stemming from increased platinum investment in the Chinese market. China’s strong platinum bar and coin demand can be attributed to platinum’s compelling price point relative to gold and the World Platinum Investment Council’s market development efforts, increasing consumer awareness, product variation and product availability. Platinum investment demand is forecasted to increase by 23 percent by 2028.
In summary, automotive demand for platinum is resilient, investment demand is expected to grow over the coming years, and jewellery demand is forecasted to increase. It is expected that above ground stocks of platinum will be used to satisfy demand as we continue to see international mines making efforts to slow the mined supply of platinum. It is expected that above ground stocks of platinum will be depleted in the medium term.
Resilient demand, supply side risks, and a depleting stockpile suggest that future demand for platinum outweighs supply making platinum a profitable and valuable investment.