How to trade platinum?
Find out all about the benefits of trading platinum
Platinum trading - The basics
Platinum is a silvery-white metal that is even more rare in nature than gold. Platinum is used both for jewelleries and in many industrial applications. Due to this high demand and limited supply, the platinum market tends to trade at a higher price in comparison to gold. Let’s look at the biggest players in the market of platinum.
Who trades platinum?
The platinum market has a large number of participants involved. A large part of them buy platinum as a commodity, while the rest enter the market with the aim to profit from the price fluctuations of this precious metal.
- Jewelry makers
The jewellery market accounts for a large part the global consumption of platinum. The high demand for the white jewellery in combination with its scarce supply is one of the main reasons that platinum is more expensive than gold.
- Automotive industry
Automotive industry has a great demand for platinum, as it is used for making automotive catalysts, that reduce the harmfulness of emissions. Other industrial applications include hard discs, fertilizers and anti-cancer drugs.
Investors who are bullish on platinum buy platinum in the form of coins and bars. Since 1997, the American Platinum Eagle coin stands as the only official investment-grade platinum coin from the US Government.
An increasing number of traders see platinum trading as an opportunity to diversify their trading with alternative markets and capitalize on the price fluctuations of this precious metal.
What affects the price of platinum?
Platinum is often overlooked by traders in favour of gold and silver. However, once traders understand the unique characteristics of this markets, they often find the prospect of expanding their trading to platinum an interesting prospect.
- Geographically limited supply
Platinum is estimated to be around 15 to 20 times rarer than gold. Around 90% of its global supply stems from Russia and South Africa with high uncertainty regarding the future of this supply. Add in the mix the fact that it requires a lot of energy and capital to acquire a pure ounce of platinum and it is no wonder why supply is one of the main factors determining its price.
With only two countries involved in the process of mining, there is greater opportunity for monopoly-like behaviours, that can have a dramatic effect on the production levels of platinum and hence its price.
- Varied demand
Because of its dual role as a commodity widely used in the automotive industry and a precious metal, demand for platinum is tightly linked with legislation. In the summer of 2017, for examples, the demand for platinum fell as sales of diesel vehicles dropped in certain European countries over speculation that governments will raise costs to owners of diesel cars.
The price of platinum has of course more drivers than just the demand for catalysts in the automotive industry, but it is useful for traders who wish to participate in this market to be aware of the key industry events that can cause negative sentiment towards the precious metal.
Volatility in the platinum market
Contrary to gold, platinum is heavily dependent on industrial demand and the mining process. Add to it that production is concentrated in two countries only and it becomes evident that volatility in platinum is higher than any in any other metal market.
Looking at the chart below, it becomes evident that although the biggest rise in the prices of platinum was experienced in the 90ies, it wasn’t without substantial volatility. Similar volatility was seen in the next decade, when the price of platinum fell from about $2250 to below $800 within just 6 months.
Platinum price volatility 1990 - 2017
Price correlation between platinum and gold
The correlation between gold and platinum is a key statistic that metal traders take into account when assessing the platinum market. Although the prices do move in tandem, platinum has traditionally been more expensive than gold due to its higher scarcity.
A look at the chart below confirms that from 1987 until 2008, there were only a few instances that the price of platinum was below the price of gold. It wasn’t until 2011 that the gold price started exceeding the platinum price. This price anomaly is considered a valuable opportunity for traders with a longer-term outlook.
While platinum reserves its own place as a metal with a limited supply and increasing demand, other precious metals often chosen by traders looking for less explored markets is copper. Find out all you need to know about copper trading and the benefits in store for traders.
Now that you know the unique characteristics of the platinum market, find out
- How to trade copper
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