Are Platinum And Palladium Worth Investing In Over Gold And Silver?
Friday, September 22nd 2023
Gold and silver have long dominated the precious metals world as money standards and aesthetic assets, but platinum and palladium have recently come into their own as investments due to specific properties and market dynamics that present intriguing investment opportunities.
Platinum and Palladium: A Quick Introduction
Before diving deeper into investment specifics, let’s first explore these metals. Platinum and palladium belong to the platinum group metals (PGMs) family of metals; both possess exceptional properties that make them essential in numerous industries.
Platinum, commonly referred to as “white gold,” has many desirable properties: denseness, malleability, non-corrosive and an elevated melting point make it the ideal material choice for jewelry applications and automobile catalytic converters as well as several industrial uses.
Palladium stands out among PGMs due to its superior ability to absorb hydrogen and its outstanding catalytic properties; therefore, despite being amongst the least dense metals with lowest melting points it has found a home on the market through automotive catalytic converters, electronic components, dentistry, and medicine applications.
Investment Prospects for Platinum and Palladium
Both platinum and palladium investments offer two broad categories of opportunities.
- Industrial demand: Both metals find great use across numerous industries, particularly automotive. As governments tighten emission standards globally, demand for catalytic converters featuring both platinum and palladium will only continue to increase. Furthermore, electronics, medicine and jewelry all continue to provide strong demand sources.
- Supply considerations: In contrast with gold and silver mining which takes place worldwide, platinum and palladium mining tends to concentrate in South Africa and Russia due to political unrest, labor unrest, geopolitical risks in these regions that could cause major supply disruptions that lead to higher prices for both metals.
Comparing Platinum and Palladium with Gold and Silver
Once we’ve established the fundamentals for platinum and palladium investments, let’s turn our attention to gold and silver investments. Gold has long been seen as an insurance against inflation while being considered safe haven during times of economic unease; silver on the other hand is both industrial and precious, giving it a unique duality in demand characteristics.
Here are a few key considerations when comparing metals:
- Performance during economic uncertainty: Gold, and to a lesser degree silver, have proven particularly resilient during periods of economic turmoil. Platinum and palladium tend to follow economic cycles more closely due to their industrial applications.
- Diversification: Platinum and palladium offer opportunities beyond precious metal investments in terms of diversifying risk in an investment portfolio by way of different market dynamics and supply-demand factors. They may help spread this exposure.
Investment Risks in Platinum and Palladium
Investment in platinum and palladium comes with inherent risks that should not be taken lightly, including:
- Volatility: Platinum and palladium can both experience price volatility due to supply-demand imbalances, making them potentially riskier investments than gold and silver.
- Geopolitical risk: Platinum and palladium mining operations tend to cluster in certain regions, creating political instability or changes to mining regulations that can drastically affect prices of these precious metals.
Investing in Platinum and Palladium: Different Avenues
Platinum and palladium investors have various avenues available to them when looking to invest in these precious metals:
- Physical metals: Investors interested in owning physical platinum and palladium assets can buy bullion bars or coins directly. Although this provides direct ownership, storage and insurance costs will apply.
- ETFs and ETCs: Exchange-Traded Funds (ETFs)(1) and Exchange-Traded Commodities (ETCs)(2) offer investors an easy way to invest without needing to store physical metals themselves.
- Futures and options: Futures and options contracts provide exposure to metal prices without physical delivery of their commodities.
- Mining stocks: Investors looking for indirect exposure can also consider investing in companies that mine these metals directly, providing indirect exposure.
The Role of Market Sentiment and Speculation
Investor sentiment and speculation play significant roles in the price movements of precious metals, with gold and silver experiencing price movements often in response to economic and geopolitical events; with platinum and palladium however, industrial demand and supply considerations play just as large a part in creating price volatility; yet speculation could lead to significant jumps if investors believe clean energy technologies could significantly boost platinum demand, prompting higher platinum prices overall.
Effect of Technological Innovation
Technological innovation can significantly affect the demand dynamics of the palladium and platinum. For instance, innovations in the catalytic converter process could affect demand. Likewise, cheaper or more effective alternatives to these metals might lower prices; conversely innovative applications of them may raise them even more.
Platinum and palladium offer attractive investment opportunities distinct from gold and silver, due to their special industrial applications combined with supply and demand dynamics that present them as unique commodities with their own risk-reward profile. They may serve as useful diversifiers within precious metal portfolios, but investors must remain wary of unique risks they present such as price volatility and geopolitical considerations related to production.
Investing in platinum and palladium depends heavily upon an investor’s risk tolerance, investment goals, and belief of demand and supply dynamics of precious metals such as these. Therefore, it’s key that each investor conducts extensive research or consults a financial advisor when selecting precious metal investments for their portfolios.
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