Why is Platinum Cheap? Considerations Before Investing
Platinum is among the most popular precious metals and is mentioned alongside gold, silver, and palladium. You might have heard singers gushing about their albums going platinum or gamers reaching the platinum level. Or you might have seen ads for getting a platinum credit card for more offers. Hence, it is safe to say that platinum holds a lot of worth and even more so than gold. And its price used to be greater than the gold price in the 1990s.
However, despite being among the top precious metals, platinum has been down in price for a few years. This has disappointed many investors as investors have always seen strong potential in platinum to increase their retirement savings. And the question arises what the reason for this downfall is? Why has platinum become so cheap when it is such a valuable metal?
Platinum History and Uses
Before we understand why platinum is so inexpensive right now, we need to understand what are the uses of platinum and what makes it so valuable.
Due to its rarity, platinum is more expensive than all other precious industrial metals. The cost of platinum is typically 1.25 times that of gold. However, that is not the case anymore. Rather, any time now, the price of platinum will be half that of gold price. Hence, platinum is very cheap compared to before.
Platinum has industrial demand. It is used as a catalytic converter and makes cars safer. Moreover, this industry metal is used in the electronic industry for thermocouples and computer hard disks. It is also used as a drug in chemotherapy to be used as a treatment for cancer.
Platinum is a green metal. It has uses in the construction industry. It can be used for producing wind turbines and solar panels and also used to make fiberglass that efficiently utilizes energy.
Out of all these uses, the three main uses of platinum are to be used as a catalytic converter to oxidize the harmful carbon monoxide found in cars that use diesel engines. People also use it as an investment due to its rarity and high price, just like they buy any other precious metal. And lastly, people use it for jewelry as it gives a posh effect.
Reasons For Platinum Being So Cheap
The Rise of Palladium
Palladium is another precious metal, and in the last decade, manufacturers have observed that the use of palladium for catalytic converters is more effective than platinum. This makes palladium the real rival of platinum. And the high amount of platinum was only required for diesel-powered cars, and other catalytic converters could use palladium.
Initially, the price of palladium was half of that of platinum. However, platinum prices fell as the automotive industry increased its palladium consumption. And now, the palladium price is almost twice that of platinum, which caused the substitution of palladium.
Reduction in Diesel Cars
It has been observed that when the Volkswagen diesel scandal occurred, it caused a lot of commotion among people regarding the use of diesel cars and stunned the platinum market. This scandal reduced the demand for diesel cars and reduced platinum prices by 30%. Platinum demand levels also reduced in the automobile industry.
This scandal stated that the diesel engines were not as environmentally friendly and safe as they were marketed. Therefore, many individuals backed off from buying a diesel car. Additionally, there were also heavy taxes on diesel cars which turned off many people who chose not to purchase diesel cars. And this lowered the demand for platinum for diesel cars to make them safer, and therefore, the industry reduced its price.
Additionally, palladium and platinum will be affected as the world sees electric and fuel-cell vehicles as the future.
Platinum is also becoming less fashionable as compared to many years ago. Many people prefer gold and silver for jewelry rather than platinum.
This is because platinum has a different shine when polished, separating it from white metals. And this shine can enhance or de-enhance the aesthetics, which does not make it preferable for many.
Alternative Assets for Investments
Many people who used to buy platinum as a source of investment shifted to newer options, such as cryptocurrency. As time passed and cryptocurrency gained tract, many started investing in bitcoin.Cryptocurrency has become the new frontier for tentative anti-inflation trading.
Moreover, as platinum is mainly used in the automobile industry, it can be subject to vulnerability if economic growth falters.
Platinum production has a centralized supply. About 70% of the platinum supply in a year comes from a South African region known as the Bushveld. Therefore, if any issues arise in this region, the supply of platinum can be hindered. And these issues can be anything from power failure, political instability, natural disasters, wars, etc. This makes the supply market for platinum very vulnerable.
Therefore, any hiccups in the supply chain of platinum can directly affect its prices.
Rarity is sometimes not enough for a metal to be monetarily valuable. Gold has played a crucial part in the world's monetary system in ancient times. Therefore, it has a rich monetary history.
Platinum does not have such rich monetary history, contributing to its reduced price.
Will Platinum's Price Ever Rise?
While platinum's prices right now are cheap, there are still chances that price growth will be observed. One way this can be achieved is through green hydrogen. Green hydrogen is a way to produce ammonia and fertilizers, and it can also produce electricity by fuel cells.
Platinum produces green hydrogen, which is used in hydrogen fuel cells in water electrolyzers. Green hydrogen is the future for reducing harmful exhaust emissions, and platinum is the key to achieving a green hydrogen supply.
However, green hydrogen is a far-fetched idea. Hence, it can take many years to enter the market and gain popularity.Moreover, palladium prices have been affected due to the Ukraine conflict, which could cause automotive demand to shift to cheaper platinum.
And as emission guidelines increase, demand for platinum loadings in catalytic convertors may increase.
Despite being one of the most valuable precious metals and sitting at the top of the throne, platinum is priced inexpensively. Platinum price used to be double the price of gold, which hardly ever fell before the gold price.
Several factors affect the price of platinum and have caused platinum to be so cheap right now. Platinum might rebound and get its rightful place back on the throne, and the platinum price might increase in the near future.
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