There’s no denying that investors love gold. The ‘yellow metal’ as it is fondly called is the de facto store of value across the globe, weathering economic storms well and returning high yields in more prosperous parts of the cycle.
Precious metals in general are a popular way for many investors to diversify outside of stocks and shares, by spreading their portfolio into these highly prized commodities with intrinsic value.
But of course gold is not the only precious metal, and one of its main rivals in terms of value and popularity is platinum – so how do the two stack up against each other?
Common uses of gold and platinum
As two of the most desirable precious metals, gold and platinum have several uses in common.
Investment itself is one of their uses, as people and institutions all over the world speculate on a possible rise in value of one or both of the commodities.
Both have a range of applications in electronics and machinery, creating an industrial demand for both as raw materials.
And their high perceived value leads to them also being used in status symbols like jewellery and ornaments.
The shifting supply and demand across all of these markets combines to influence the change in price of gold and platinum on any given day – mediated further by the amounts of newly mined metal that come on to the open market.
In fact the two metals have a shared history dating back to pre-biblical times, as gold used in ancient Egyptian burial sites and pre-Columbian America has been found to contain traces of platinum.
Is platinum rarer than gold?
It depends on your definition of ‘rare’. According to Royal Mint Bullion, platinum is present in the Earth’s crust at about 5 parts per billion.
Gold on the other hand constitutes about 4 parts per billion, making it the scarcer element; however, that is not what determines real-world supplies of the two.
The WPIC says that if all the gold ever produced were poured into Olympic swimming pools, it would fill three of them.
In comparison, all of the platinum produced in the world would come to about ankle-deep in one Olympic pool – highlighting why platinum is regarded as being significantly rarer than gold in real terms.
Platinum mining is concentrated mainly in South Africa, which is responsible for around 75-80% of annual output.
Savvy investors don’t like diversification – and putting your money into a metal that depends largely on economic and political stability in a single country is regarded by some as a high-risk strategy.
Again, it is the real-world supply of platinum and its future reliability that influences many investors’ buying behaviour, rather than its overall abundance or lack thereof in the ground.
Factors in favour of gold
Gold, in contrast to the above, has several factors acting in its favour. It is found across the globe and is extracted wherever it is found.
This lends natural diversification and redundancy to global gold supplies, with no one country able to artificially manipulate the amount coming on to the market each year.
It’s easier and cheaper to mine than platinum, and past history has shown that gold typically recovers its value faster after a slump.
Meanwhile, a large proportion of platinum used each year is in industrial products like catalytic converters – which means during an economic slump, demand for platinum falls, preventing it from being as effective a store of value as gold.
To truly rival gold as holding its value even in a downturn, platinum needs a reputational shift to become the first choice for jewellery, adding sentimental and ornamental value that can overcome a fall in its industrial value.
Why buy platinum and gold?
Both platinum and gold perform relatively well independently of other asset classes, so adding either or both of them to your portfolio typically lowers your exposure to risk and volatile markets.
They are also not tied to a single currency, helping investors to use the precious metals as a hedge against inflation in any one economy.
Low risk, low volatility and high stability adds up to make investing in precious metals – and especially in gold and platinum – a compelling proposition.
But that still leaves the question of whether you should buy platinum or gold. The answer to that question will depend on market conditions on the day, so be ready to step in if you spot either commodity as significantly undervalued.
For even better diversification, add both to your portfolio. You’ll still need to time your trades well to buy at the best price, but holding a certain amount of platinum as well as gold gives you exposure to increases in the value of both, along with hedging against falling prices for either.
How much platinum should you buy?
If you choose to invest in both gold and platinum, this raises the question of the percentage split you should adopt between the two.
There are many ways to decide this – such as long-term yields and whether each metal is over or undervalued at the time you are looking to buy.
One option could be to match the total liquidity of gold and platinum. While you are unlikely to be trading in the kinds of quantities the central banks hold in their reserves, this can still give you some confidence in the amounts you can sell at short notice if you ever need to.
According to a 2015 Issue Brief by the World Platinum Investment Council, at that time global daily trading of platinum frequently topped 200,000 ounces.
This led the WPIC to suggest that for a central bank, holding 20% of its reserves as platinum would ensure approximately equal liquidity with that of gold.
For private investors looking to replicate that, a ratio of 4:1 gold to platinum should keep your portfolio in line with overall liquidity in the precious metals market, if that’s the variable you choose to help you decide.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.