Platinum as Inflation Hedge: Inflation Protection With Platinum

Author: Focus on the User | 6 min read
Platinum as an Inflation Hedge

Make no mistake about it, the number one enemy of your hard-earned money is inflation. Every single year, the amount of stuff and services you can by with every hard-earned dollar you earn becomes less and less. It might be hard to notice now, but if you look at the amount of stuff or services you can buy ten years from now with the amount of money you have right now with today's dollars, it would blow your mind. The reality is that inflation rots money. It's like this invisible force that shrinks the purchasing power of your cash.

The reason for this of course is the money supply. As the US government continues to print billions of dollars and creates money out of thin air, thanks to the US Federal Reserve, the value of the existing store of money out in the larger economy decreases. This is basic economics. The higher the supply assuming a static demand, the lower the price. It is no surprised then that the value of dollars degrades with each passing year. There is pretty much nothing you could do about it from a macro economic perspective. However, on the level of your own personal financial activities, there is quite a bit you can do about it.

One of the best strategies to beat inflation is to invest in precious metals. One of the best metals you can invest in is platinum. In fact, investing in platinum bullion can go a long way in helping you weather the harsh effects of inflation throughout the years.

The Traditional Value of Platinum

Since precious metals are both either collector’s items, raw materials for jewelry or industrial raw materials, they have intrinsic value. Compare that with fiat money like US dollars. If it weren't for that text on printed currency that says that it is backed up by the United States government, US dollars won't have any value. It only has value because the US Federal government says that it has value. In other words, the US Federal government at some time in the future can sell bonds or can raise taxes to raise money to back up the money that is already printed. See what's wrong with this picture? The moment the US Federal government stops backing up its money, the US dollars will turn into essentially worthless paper. To put in another way, US dollars, European Euros, Chinese Yuan, Japanese Yen, and other fiat currency only have value because people trust it to have value. Once you lose that trust, you lose the value.

It really is that simple. The same cannot be said of precious metals like platinum. Due to the fact that it has industrial uses and due to the fact that people have historically used platinum for jewelry and also has expensive alloys, platinum has intrinsic value. Even if people will need platinum in the future because of these uses, it is precisely for this reason that precious metals have been used as stores of value throughout history. It is not a matter of the government saying that something is valuable because it says so. No. With precious metals, people can see the intrinsic value of gold, platinum, and silver without the government telling them to value it accordingly.

Platinum's Trump Card: Rarity

Platinum's trump card really is its rarity. It it’s rarer than gold. Gold is the traditional precious metal that people gravitate to during times of economic uncertainty, economic meltdowns and financial crashes. When there is a runaway inflation, people flock to gold. If you think that that is awesome, wait until you invest in platinum bullion. When you have a decent chunk of your net worth invested in platinum bullion, you not only benefit from platinum's traditional role as a store of value, you also benefit from the fact that it is rarer than gold. As a result, it tends to be worth more than gold.

If gold experiences a run and people flock to it, imagine the appreciation of platinum's price. Your platinum bullion will become worth more than when you bought it. This is one of the reasons why people invest in platinum bullion. Platinum is rarer than gold and this is a key advantage that won't go away unless there are major platinum ore vein discoveries that would change the market for this rare metal. This rarity is a key trump card that many platinum investors hang on to.

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Platinum Is Very Liquid

Just like investing in real estate or artwork, you can protect yourself against inflation on a practical level by investing in platinum bullion. Platinum bullion has one key advantage that real estate investment and art don't. When you invest in real estate, you beat inflation because the price of the land, and the property go up with time. If the dollar crashes or there is an economic meltdown, it will take more dollars to buy a loaf of bread or certain goods. However, if you invested in land, the price of the land keeps up with the depreciation in the value of money. The problem with investing in land or real property is that, it takes a while to sell real estate.

You have to get a real estate broker who has to advertise it, and you'd have to wait until somebody makes an offer for the property, and you accept that offer. Also, depending on how desperate you are to sell your real estate holdings, you might not necessarily enjoy much of real estate's inflation beating properties. Why? If you are in a rush to unload your real estate holdings, you might be tempted to take the best offer you could get. Unfortunately, the best offer might not be enough to keep up with inflation. This is especially true when there is a crash in real estate in the market. As the financial crash of 2008 shows, the real estate market can experience very steep crashes where it actually fails to keep up with inflation. With platinum, you can easily unload your platinum holdings. Why? It's very liquid. You just go to a precious metal's buyer, and they would have daily prices of platinum. They would have a bid and ask price. The bid price is the price that they would pay for your platinum.

The ask price is the price that they would sell your platinum for. Since there are many buyers of precious metals out there, it's very easy to get in and out of precious holdings. So while you may think your platinum bullion investment is bulky and cumbersome, it's very easy to unload that. You only need to take your platinum bullion to a licensed and accredited precious metal buyers and turn your platinum bullion into cold hard cash. You can then use this cash to buy the stuff you need or to buy other precious metals or to buy stocks.

Platinum's Strong Industrial Uses

As mentioned above, besides being a traditional store of value, precious metals also have intrinsic value because people want them. There are many industries that create products with platinum parts and platinum alloy. This steady base of demand ensures that platinum bullion and platinum in general will have value in the future.

This is very different from a collector's items like art or paper money which bases its value on the help of the government. That's backing up that paper money. The industrial use of platinum is not going to go away. There will always be a baseline demand for platinum. Even if the price of the platinum crashes, let's say, and as an investment vehicle it will still worth a certain amount. Why? Industrial demand.

Platinum's Jewelry Demand

Tracking the analysis above regarding platinum's intrinsic value as an industrial raw material, platinum bullion and platinum in general also retain its value because it's very much in demand as a raw material for a jewelry. Platinum is more expensive than gold, but it looks very much like silver. Many people call platinum a white gold. There is an intrinsic beauty to platinum that makes it a great base material for jewelry. The great thing about platinum jewelry is that the demand is pushed by both the need for the base metal and also for the collector value or the intrinsic value of the specific piece of platinum jewelry.

Since people aren't going to sell their platinum jewelry for its base metal value, there is a constant demand for new platinum jewelry pieces. This only boosts the overall demand for platinum bullion. Considering the dynamics of the platinum jewelry market, you can see how this ends up stabilizing the demand for platinum bullion. There seems to be a stable and constant demand for this precious metal because of the dynamics of the platinum jewelry market. Moreover, the jewelry demand for platinum only looks like it will continue to grow with time as countries like China and India continue to develop.

These countries traditionally put a lot of stock in jewelry as investment options. It would not be unreasonable to think that as these traditional countries' net worth continue to increase more and more Chinese and Indians would invest in precious metals like platinum. This poses a tremendous potential upside for platinum billion and other platinum investments in general.

Platinum as a Staging Area for Portfolio Recovery

Platinum as a Staging Area for Portfolio Recovery

If you have an investment portfolio that is diversified in the precious metal bond's stocks real estate, you might want to consider loading up on a platinum bullion. Why? When the market experiences a crash, certain alternative investments get hit harder than others. In many cases when the equity's market crashes, certain bonds go up, but many other bonds go down. Similarly, when there is a crash in the stock market, sometimes the real estate market is hit as well.

Regional real estate markets definitely feel the fall out. With that said, you can use platinum bullion as your tools to stage a recovery for your portfolios value when the stock market crashes. How? By diversifying into precious metals, you are assured of a steady source of investment capital that you can then tap very quickly when the market tanks. You can then use this freed up investment money to buy blue chips stocks, which usually stage a quick comeback before proceeding to crash.

Again, you can ride these short term gyrations in the market. When the market goes up, you make money, when the market crashes you make money. Why? After a short appreciation, you can then go back into platinum and then wait for the market to crash again and make money of the short term recovery. It is this resiliency and flexibility that make investing in precious metal like platinum bullion such an important part of a responsible investment strategy, especially during uncertain times.

Make no mistake about it, we are living in very uncertain times. Part of the reason the stock market is doing so well is due to US Federal Reserve policy. The Fed has been buying up tons of US debt. As the US loads up on debt to pay for this activity, it might hit a wall-whether due to economic reasons or political issues.

Whatever the source of the shock, it can send serious shockwaves throughout the global economy. Be that as it may, the US stock market is obviously not enjoying its gains because of any underlying strength in the greater American economy. If you want to protect yourself from market crashes and economic downturns in the future, you should devote a significant percentage of your total investment portfolio in platinum bullion and other precious metals.

Platinum bullion packs solid value, is very liquid, compares well with other alternative investments, stores well, and is globally recognized as a store of value. Moreover, its industrial and jewelry uses provide a 'base' value for it. If you are looking to diversify your portfolio with precious metals, you would do well to diversify your precious metals portfolio too. Don't just pack all your cash in gold or silver. Consider platinum bullion for metals diversification.

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Disclaimer: Content on this website is not intended to be used as financial advice. It is not to be used as a recommendation to buy, sell, or trade an asset that requires a licensed broker. Consult a financial advisor.

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