Platinum one ounce bar

Is Platinum a Buy for 2015?

By Wael Abdelgawad

Many financial experts argue that gold cannot be considered a solid investment at this time. Gold is typically a hedge against inflation. With the strong dollar and low interest rates, gold has not been doing well. Furthermore, demand from India – the world’s major buyer – has gone down.

What about platinum? Is it a good buy in 2015? Let’s take a look at platinum’s recent history and current demand.

When I got married in 1998, we each bought platinum wedding bands. At that time the price was in the mere hundreds of dollars per ounce. Over the next ten years platinum soared like the space shuttle, hitting a peak of $2,066 in 2008 – coincidentally the same year I got divorced. I wish I’d sold my ring then, but I held on to it for sentimental reasons.

Unlike gold, platinum is an industrial metal. Almost 50% of it’s use goes into automobiles, especially catalytic converters. As the world economy entered a recession in 2008, demand for new cars plummeted and so did the price of platinum, falling to a baseline of of $850 in a matter of months.

Platinum price chart
Price of platinum from 2000 to 2015.

As the economy recovered, so did the price of platinum. It rose to the $1,800 level by 2011. Since then it has been on a steady decline to the current price point of $1,200 or so, possibly due to a glut of above-ground platinum stockpiles in Europe.

How about today? Well, although platinum is in reality less rare than gold, the production channel is narrower. Platinum is mined mainly in South Africa, and the process is difficult. This narrow supply channel is one reason why the price of platinum is so sensitive to demand fluctuations. When demand falls, platinum plummets. When it rises, platinum soars.

As China’s economy booms, demand for automobiles – and thus catalytic converters containing platinum – continues to rise. Furthermore, any tightening of emissions standards in Europe or China will increase the need for platinum, as since the metal is key in helping to reduce pollution from vehicles.

All considered, platinum looks like a good buy at this price point, and I wouldn’t be surprised to see it gradually climb to 2008 levels over the next few years. It might be almost time to sell that platinum ring of mine.

 

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