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Platinum is revered both for its beauty and for its industrial properties. It represents a speculative investment, but platinum's unique supply and demand fundamentals have the potential to drive some spectacular returns.
Many investors are surprised to find platinum is even more rare than gold. In fact, platinum is so rare that all of the metal ever mined could fit into a room measuring 25 feet by 25 feet. This super-dense precious metal is more than twenty times rarer than gold.
Despite scarce supply, platinum prices recently fell below the gold price, an anomaly seldom seen in the past several decades. Gold's rise versus platinum is primarily due to its rediscovered use as a monetary and safe-haven asset during these inflationary times, but like gold, platinum is a tangible asset that can be owned in the form of bullion coins or bars. Perhaps, in the short run, investors underestimate the white metal's wealth preserving attributes.
Investing in platinum offers a huge upside potential.
Historically speaking, platinum has generally sold for around twice the price of gold. As recently as May 2008 platinum was 2.4 times the price of the yellow metal before the financial collapse took both metals down. Since then, platinum has lagged. Don't expect this period of underperformance to last forever.
Platinum is likely to outperform should any of the following occur:
With an overwhelming percentage of demand coming from the industrial sector - especially from its use in catalytic converters in automobiles - platinum is a more speculative investment than either gold or silver. Investors should be prepared for more volatility, both to the upside and the downside. But those who can hang on for the ride may be richly rewarded.
Scarce platinum has always been extraordinarily difficult to find. Now it is getting exceptionally difficult to extract, once a deposit is located. Nearly three quarters of the world's supply for the metal comes from a single country - South Africa. The ongoing violence, labor disputes and power outages in South African mines, periodically disrupt production. It is not hard to imagine even more severe problems there creating a serious shortage and immediate price spike.
The events of early 2008 were likely a prelude: massive electrical blackouts shut down production at many of the country's mines. Furthermore, rumors about a potential move by the South African government to nationalize all mines has dissuaded international mining companies from either opening or expanding production in the country.
On the demand front, platinum's prospects are also bright. Despite the economic slowdown in many parts of the Western world, the future outlook for auto demand (and thus the demand for platinum) remains very strong thanks to a rising middle class in both China and India - where nearly 40% of the world's population resides!
The downside risk to owning platinum coins - compared to gold coins - is currently somewhat mitigated because the metal has already seen a major drop in value relative to gold. Investors comfortable with platinum's more speculative nature should consider diversifying a portion of their precious metals portfolio; the metal's risk vs. reward profile has rarely looked better.