In terms of popularity and practicality, precious metals don't get much more well-known than gold and platinum. Both platinum (for catalytic converters) and gold (for electronic components) are valuable for their ornamental and practical functions.
Gold has long been revered as a valuable investment and a stunning decorative accent. Platinum is a highly sought-after metal that has several applications in the commercial and jewelry sectors. While both have the potential to be profitable investments, their long-term stability and price volatility vary to different degrees.
In this light, it is impossible to avoid drawing parallels between platinum and gold. Compared to platinum, why does gold cost so much more? This article aims to help investors determine which precious metal is the better investment choice.
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About Platinum
Platinum is a rare, soft, malleable, ductile, silver-white transition metal. It is one of the six noble elements and is highly valued for its rarity, resistance to corrosion, unique physical properties and catalytic capabilities. Platinum has many uses, from industrial and medical applications to jewelry, coins and other decorative items.
In industry, platinum is used in catalytic converters, electrical contacts and electrodes, dentistry equipment and laboratory equipment. It is also used in thermocouples, other temperature-measuring devices and hydrocarbon and chemical processing equipment. Platinum is commonly alloyed with other metals, such as palladium and ruthenium, to increase its strength and durability.
Platinum is used in pacemakers, heart valves and other medical implants in the medical field. It is also used as an anticancer agent, as it inhibits cell growth and replication. In addition, platinum compounds are used in some diagnostic tests, such as tests for HIV and hepatitis C.
In the jewelry industry, platinum is popular due to its beauty, hardness and resistance to tarnish. Platinum jewelry is often more expensive than gold and silver pieces but is also more durable. Platinum coins and bars are also popular investments.
Platinum is also used in producing coins and medals and for scientific awards, such as the Nobel Prize. In addition, platinum has been used in the space program, as it does not corrode or react with oxygen in a vacuum.
As of 2012, Russia and South Africa account for over 50% of platinum production. The U.S., Canada and Zimbabwe follow these two countries. Platinum is mined as a primary metal and a byproduct of nickel, copper and other platinum-group metals. In addition to being mined from the earth in ore form, platinum can also be recovered from scrap sources.
Platinum is found alongside other precious metals in alluvial deposits throughout the world. It is also found as an impurity in gold and silver ores. Platinum is relatively common and inexpensive in Pakistan, Zimbabwe, Russia and South Africa. In the U.S., platinum tends to be more expensive than other precious metals due to a lack of production from domestic sources.
About Gold
Gold is one of the most versatile and valuable metals on the planet. It has been used throughout history in coins, jewelry and other forms of currency. Today, gold is widely used in industrial applications, including electronics, dentistry and medicine.
Gold is also widely used as a decorative metal in art, architecture and jewelry. It is popularly known for its strength, durability and malleability, making it an ideal choice for several uses.
Gold has been used to create coins and jewelry since the dawn of civilization. In ancient times, gold was considered a symbol of wealth and power and its use as a form of currency was widespread.
Today, gold coins are still used as a store of value, though paper money is now more commonly used as a medium of exchange. Gold coins are often collected as prized investments and can appreciate over time.
Gold is also an important metal in the industry. Its high electrical conductivity and resistance to corrosion make it ideal for various electronic components, such as printed circuit boards, connectors and switches.
Gold is also used in dentistry for fillings and dental crowns, as well as for medical equipment. Gold is also a decorative metal in art and architecture, where its unique color and luster can add beauty and elegance to any setting.
Gold can be easily forged, drawn or pressed into sheets, wires and other objects. Its malleability makes it easy to work with during manufacturing processes. Gold is also a very dense metal with impressive electrical conductivity, making it valuable and versatile for electronic equipment such as computers and smartphones.
The amount of gold on earth is relatively small, estimated to be around 170,000 tons. The amount of gold in the earth's crust is approximately 0.023 parts per million. Gold is found in most rocks but most commonly in quartz veins and other sedimentary deposits.
Gold has traditionally been mined from open-pit and underground mines in South Africa, the U.S., Canada, Australia, Russia and Peru. However, due to the low concentration of gold in the earth's crust, mining for gold has not always been profitable.
In recent years, China has become a significant gold producer and overtaken South Africa as the country with the most potential to mine gold. In 2011, China produced 222 tons of gold. While this is less than one percent of the world's production, it has significantly impacted global consumption patterns and pricing.
The Difference Between Gold and Platinum
In the same way that silver does not have a good reputation among investors and collectors, platinum has a less favorable reputation. The key difference between gold and platinum is their use. It is worth noting that despite their similar names, gold and platinum are quite different metals. Platinum has many different uses in industry, from jewelry to gas electrodes. However, gold is more economical for these purposes. Platinum is a rare and expensive metal, making it less common in the industry.
On the other hand, gold has a worldwide reputation as a valuable and noble metal. Its historical use as currency made it popular in many cultures. Gold is also rare, but not quite as rare as platinum, which makes gold more affordable for investors.
This means that an ounce of gold will cost substantially less than an ounce of platinum. Additionally, gold is more malleable than platinum and can be used with other metals to create alloys. It also has a greater resistance to corrosion than platinum. However, gold is also more susceptible to scratches.
Gold vs. Platinum: Price
In general, gold and platinum prices track one other rather closely. However, the value of each precious metal varies depending on its unique circumstances. Platinum's price is set by supply and demand, whereas gold's is affected more by market sentiment.
Gold's position as a refuge causes its price to rise during economic turmoil. Diminished demand is leading to lower platinum prices. The converse is true during times of sustained economic growth.
Currently, an ounce of platinum costs $1,069, whereas an ounce of gold costs $1,858. Price fluctuations in platinum are highly responsive to shifts in supply and demand. Gold prices have risen due to the deteriorating state of the global economy and the escalating trade dispute between the United States and China.
The inter-commodity spread refers to the price gap between gold and silver. Occasionally, platinum can fetch a price premium above gold and vice versa. The ratio of gold to platinum sheds light on market sentiment by illustrating the link between the two metals. When the figure is less than one, gold is more expensive than platinum and vice versa.
Gold vs. Platinum: Liquidity
The liquidity of gold and platinum is high, making them both suitable for investment purposes. Gold is generally considered to be the more liquid of the two, as it is easier to buy and sell in the global markets. This is due to its higher liquidity, which means buyers and sellers can find each more easily, resulting in lower spreads and faster transactions.
Platinum is less liquid than gold but relatively more liquid than other commodities or investments. This means it may be harder to find buyers and sellers, resulting in wider spreads and longer transaction times.
Gold vs. Platinum: Volatility
Gold is generally considered a more stable investment due to its long-standing value and low price volatility. Platinum, however, is more volatile and its price can fluctuate significantly over time due to changing supply and demand. This volatility can often result in higher gains but also greater risks. As with all investments, it's essential to research and understands the potential risks and rewards before investing in either gold or platinum.
Gold vs. Platinum: Which Is More Precious?
Opportunity knocks when the gold-platinum ratio diverges (the price of gold divided by platinum). When the ratio was lower than 1, platinum was more costly than gold. However, the current ratio is at 1.6, which makes platinum the more cost-effective and desirable metal.
While both gold and platinum are highly prized, they react differently to various conditions. There comes a time when platinum can no longer be relied upon. Gold's price moves wildly due to market sentiment rather than fundamentals like supply and demand. Its volatility is less than that of platinum.
There's also the reality that just two countries—South Africa and Russia—produce platinum. Platinum prices throughout the world will react to developments in these two nations.
After South African mines encountered power interruptions in March 2008, platinum prices skyrocketed to $2,252 per ounce. By the end of November 2008, the price had fallen to $774. Platinum costs might be affected by the turmoil in the auto sector.
Speculative buying and selling have caused gold prices to swing wildly, something we haven't seen in quite some time. The United States, Canada, Australia, India and China are just some countries that manufacture yellow metal. Global prices are unlikely to be greatly affected by a supply constraint in a single nation.
Gold remains the preferred safe-haven investment despite the ongoing debate between it and platinum. Speculative buying of gold and gold-platinum hybrids brought its price to as high as $1,723 per ounce on December 13, 2008. The yellow metal touched a record high of $1,922 per ounce in 2011.
Why Is Gold-Platinum Ratio So Important?
Investors may have heard about the significance of the gold-platinum ratio. The price of yellow metal is determined by its supply and demand, whereas the markets set the price of platinum. Because of this, the two metals have an inverse relationship.
When platinum is more expensive than gold, it's described as being in a "golden" state. When gold is more expensive than platinum, it's known as being in a "platinum" state.
This ratio shows how much gold goes into making one ounce of platinum and vice versa. If the ratio is less than one, then gold is more expensive than platinum. When it stands at 1.33, the two metals are in a "platinum" state. The ratio generally fluctuates between 0.7 and 1.33, although it was as high as 1.7 in May 2011 and 2.0 in December 2012.
The ratio is calculated by dividing the platinum price by the gold price. When the two metals are in a "golden" state, this ratio is less than one. It is only when they trade at parity or when gold is more expensive than platinum that it is over one.
The yellow metal, which has a 3,000-year history of use as a precious metal and store of value, has become the world's last resort in times of geopolitical turmoil and economic instability.
On the other hand, platinum is indispensable for the creation of hybrid cars and electronic devices. Demand for nickel and palladium, other precious metals used in such products, has also increased significantly in recent years.
If gold prices keep rising and platinum were to lose its value relative to gold, investors may feel the need to seek alternative investments that can protect their purchasing power.
Why Gold Is Popular Among Investors
The world's reserve currency, the U.S. dollar, has experienced a loss in the public's confidence. As a result of the 2007–2010 global recession and the European sovereign-debt crisis, investors seek to hold non-yielding bullion for its ability to hedge against inflation and currency depreciation and its appeal as an investment.
According to analysts at Barclays Plc in London, gold has emerged as the best haven among precious metals.
Yellow metal has always been a commodity with staying power. It hasn't been impacted by the gyrations in the stock market, the slowdown in Chinese domestic demand and the weakening economy of Japan. Early in the year, gold prices rose significantly as traders began to panic about the sustainability of the U.S. and Eurozone economies and the global economic slowdown.
Investors have sought safe havens for years, which is why gold prices have climbed. Gold also has a long history of being readily available as a store of value and investment with low risk. It is a good form of insurance against inflation.
Gold is available in various forms, including jewelry, coins and bars. People can even buy gold bullion coins in bulk to turn them into collectibles or investments. Bullion products usually come with a guaranteed value and low premiums, which makes them suitable investments for traders and investors alike.
How Do I Invest in Platinum or Gold
Several methods are available for investing in platinum and gold. Below are some of the more commonly used ones.
1. Bullion
If you want to invest in physical gold or platinum, consider investing in bullion. Bullion is available in the form of coins, rounds and bars.
Bullion coins contain a set amount of gold or platinum that represents their intrinsic value. These coins are legal tender whose value is backed by national governments and central banks such as the United States Mint, Royal Canadian Mint and Perth Mint.
Platinum coins, also known as proof or pure platinum coins, are often made of platinum and are therefore legal tender. A silver-bonded value on their face also backs them. Most platinum coins have a face value and a precious metal content, but they can also be minted with other metals like palladium to maintain the precious metal's price.
Bullion bars are typically available in grams. They come in various sizes such as one-tenth oz., half oz., quarter oz. and one oz. bars. Rounds are not legal tender but are produced by private mints and are usually much cheaper than coins.
Bullion is typically purchased through a dealer, broker or financial institution. The value of gold and platinum bullion is based on the current spot price of the metal, which is determined by the global commodities market.
2. Exchange-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) that invest in gold or platinum are investment funds that hold assets such as stocks, commodities or bonds and are traded on exchanges like a stock. ETFs are designed to track the performance of an underlying asset, such as gold or platinum and can be used by investors to gain exposure to these assets without buying them outright.
ETFs are similar to traditional mutual funds but differ in key ways. ETFs trade on exchanges and can be bought or sold throughout the day at market prices, while mutual funds are priced based on their net asset value (NAV) at the end of each day. ETFs also typically have much lower management fees than mutual funds, which makes them more cost-effective for investors.
Investing in gold or platinum ETFs allows investors to access these precious metals without purchasing the physical metal. Gold and platinum ETFs are backed by physical bullion held in a custodian's vault and the current spot price of the underlying metal determines the fund's NAV. This can provide investors with a convenient way to diversify their portfolios or hedge against inflation.
3. Futures Contracts
A futures contract represents a binding agreement to buy or sell a commodity for a fixed price on an agreed-upon date in the future. Commodities are often traded on futures markets that allow buyers and sellers to enter into transactions based on the value of the underlying commodity. The most common futures contracts include those based on stocks, bonds, currency, wheat and soybeans.
Investors use gold and platinum futures to invest in these metals without purchasing physical bullion. Futures contracts are also known as futures contracts or forward contracts. Futures trading allows traders to speculate on the price movement of a given commodity. This speculation can be done by assuming that the price will rise by a certain amount, making it possible for traders to buy products that are expected to increase in value.
The International Commodity Exchange (ICE) is the world's largest futures exchange. It provides a platform for investors and traders to buy and sell gold futures through regulated brokers. It offers investors access to the world's largest gold futures exchange and is regulated by the Commodity Futures Trading Commission (CFTC).
4. Gold Mutual Funds
Gold mutual funds are investment funds that pool money from a group of investors to invest in gold bullion or other precious metals. They can also be used to invest in stocks, bonds and other investments available through mutual funds.
Investing in gold mutual funds can provide investors with a convenient way to gain exposure to metals like gold and platinum. These funds provide investors with a wide variety of investment options for their portfolios.
5. Gold or Platinum Mining Stocks
Investors can also invest in gold or platinum mining stocks to gain exposure to companies that mine gold and platinum. Mining companies often uncover new reserves of precious metals in the ground, which can lead to growth in the company's financial valuation. Mining stocks are traded through online investment platforms or traditional stock exchanges.
Miners typically raise money by selling stock shares to investors. This capital is used to finance their mining activities and shares of these companies can either rise or fall in the market depending on how well their mines are performing and their financial position.
Investors should know that a high degree of risk is involved in investing in gold and platinum mining stocks. Mining companies may experience business challenges like declining commodity prices and fluctuating metal prices that can affect their bottom line.
Gold IRAs
Gold IRAs or Individual Retirement Accounts, are retirement savings accounts that allow you to invest in physical gold. Gold IRAs are self-directed, meaning that you control your investments and are responsible for all decisions related to your account. By investing in gold through an IRA, you can take advantage of the potential for your gold investments to grow over time.
Gold IRAs are backed by physical gold, which can provide excellent stability than other types of investments. The value of gold tends to be less volatile than other investments such as stocks, bonds and mutual funds, making it a good option for long-term retirement planning. Gold has been used as an investment vehicle for centuries and its value has been proven over time.
You typically purchase gold coins or bars when investing in gold through an IRA. Depending on your chosen custodian, you can purchase gold ETFs (Exchange Traded Funds) or gold mining stocks.
Types of Gold IRA include:
Steps to Follow in Opening a Gold IRA
It is important to understand the process of setting up a gold IRA, including the steps you will need to follow. Here is an overview of the steps you need to take to open a gold IRA.
1. Choose A Gold IRA Custodian
The first step in opening a Gold IRA is to select a custodian who specializes in precious metal investments and can establish an account for you. Make sure to research the various options thoroughly before making a decision.
2. Open An Account
Once you have chosen a custodian, you need to open an account with them. This typically involves filling out some paperwork and making the initial deposit.
3. Select The Gold or Other Precious Metals You Want to Purchase
After opening your account, it's time to decide what type of gold or other precious metal you want to own. Consider the pros and cons of each option before making a choice.
4. Purchase The Gold Or Other Precious Metals
Once you have selected the gold or other precious metal you want, your custodian will buy it on your behalf and store it in a secure facility.
5. Monitor Your Investments
Your Gold IRA custodian will provide you with regular statements detailing the performance of your investments, but it is still important to stay on top of the market and adjust your investments as needed.
Gold vs. Platinum: Which Metal is Right for You?
The most popular use of both gold and platinum is as a store of wealth and value. Gold has been the traditional choice for investors, while platinum has risen in popularity in the last few decades. Additionally, platinum is very popular in jewelry production because of its hardness and tarnish-resistant qualities.
However, investors should be sure to select gold as a store of value. Gold is rarer and more valuable than platinum, making it a more attractive choice for investors who want the best return on investment. In times of economic and political turmoil, investors tend to flock to precious metals for safety.
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