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The world of precious metal investments has always been dominated by Gold and Silver. And when I first got started in precious metals I’d visit these bullion stores and see platinum and palladium but didn’t give them a second glance. I just assumed they were kitschy and had more in common with non-legal tender rounds. Boy, was I wrong.
Let’s see why.
First…
A Brief History of Platinum and Palladium
Palladium was discovered in 1803 by William Hyde Wollaston, who named it after the asteroid Pallas. Platinum, on the other hand, has a longer history dating back to ancient Egypt and pre-Columbian South America. However, it was not until the mid-18th century that Europeans began to appreciate its unique properties where Russia minted Platinum coins. Unfortunately it was for a relatively short period time and they eventually stopped due to the high costs of processing the metal.
It was only until 1997 that the United States issued the first platinum bullion rounds as legal tender. Then other countries followed suit. We had the technology to process them in a cheaper way and thus, it became possible to use as a form of currency. And since palladium has been added as a legal tender.
Both platinum and palladium are part of the Platinum Group Metals (PGMs), which are known for their remarkable properties, such as high resistance to corrosion and exceptional catalytic abilities. (This group also includes rhodium, iridium, osmium, and ruthenium- but for one reason or another, they aren’t used as currency or money).
While Platinum and Palladium are relative new comers to the scene, it’s important to note that they share the same characteristics of money that Gold and Silver do. If you want know the specifics about makes a money check out our article A Beginners Guide: Is it Money or is it Currency?
We don’t know if platinum and palladium will attain the same status as gold in silver in the world, but we do know they’re useful industrial metals with the same properties as money. This makes them interesting additions to the precious metal portfolio.
Pros of Investing in Platinum and Palladium
Diversification
Platinum and Palladium investments offer a diversification opportunity for investors looking to spread their risk across various asset classes. Since these metals tend to have a low correlation with traditional assets like stocks and bonds, they can provide a hedge against economic downturns and inflation.
Industrial Demand
Both Platinum and Palladium have extensive industrial applications, particularly in the automotive sector, where they are used as catalysts to reduce harmful emissions. As governments worldwide enforce stricter emission standards, demand for these metals is expected to grow, positively impacting their prices.
Supply Constraints
The supply of Platinum and Palladium is limited, with the majority of production coming from South Africa and Russia. Any disruptions to these supplies, whether due to geopolitical tensions, labor strikes, or other factors, can lead to a rapid increase in prices. Investment Vehicles: Investors have various options to invest in Platinum and Palladium, including physical bars and coins, exchange-traded funds (ETFs), and mining stocks. This variety allows investors to choose the investment vehicle that best suits their risk appetite and investment objectives.
Relatively New Speculative Asset
If you tend to be more risk tolerant, then investing in Platinum and Palladium could be an interesting asset to consider. Smaller market capitalization can mean lower liquidity, and thus more volatility. If you’re a seasoned investor, then this might appeal to you. My personal belief is that it makes sense to hold long term against the dollar.
None of this is financial advice. Obviously.
Cons of Investing in Platinum and Palladium
Volatility
Platinum and Palladium prices can be quite volatile, partly due to their limited supply, fluctuations in industrial demand, and smaller market cap than gold and silver. This volatility may not be suitable for risk-averse investors or those with a short investment horizon.
Lack of Monetary History
Unlike gold and silver, platinum and palladium do not have a long-standing monetary history. As a result, they may not enjoy the same level of trust and recognition as traditional precious metals during times of economic uncertainty. This means you’ll probably be holding them longer than you expect and may not have a good way to offload them quickly if you need the money- low liquidity means harder to move.
Check with your dealer (online or local) to see if they’d be willing to buy, and in what quantities, before diving in.
Regulatory Risks
The demand for platinum and palladium is closely linked to the automotive sector and environmental regulations. Any changes in these regulations or a decline in the automobile industry could adversely affect the demand for these metals and their prices.
Key Factors to Consider
Investing in platinum and palladium can be a rewarding experience, provided you understand the risks and opportunities involved. Here are some essential factors to consider when venturing into this investment arena:
Risk Tolerance
Assess your risk tolerance and investment horizon before investing in platinum and palladium. These metals can be volatile, so it’s essential to ensure that you’re comfortable with the potential price fluctuations.
Market Research
Stay informed about the latest developments in the automotive industry and environmental regulations, as they can significantly impact the demand for palladium and platinum. Keep an eye on geopolitical events, particularly in South Africa and Russia, as they can affect the supply of these metals.
Diversification
While investing in platinum and palladium can provide diversification benefits, don’t forget to maintain a balanced portfolio that includes a mix of traditional assets like stocks, bonds, and other precious metals. This approach will help you manage risks more effectively.
Investment Vehicle
Consider your investment preferences and goals when choosing between physical metals, ETFs, and mining stocks. Each option has its pros and cons, so it’s crucial to evaluate them carefully before making a decision.
Self-Custody
As with Gold and Silver, you can stack Platinum and Palladium. With that comes the responsibility of securing and maintaining them. Check out our post Unlock Peace of Mind: The Top 10 Self-Custody Essentials For Stackers for information about how to do just that.
Wrapping Up
Platinum and palladium investments present untapped potential in the precious metals market. While they may not have the same monetary history as gold and silver, their unique industrial applications, growing demand, and supply constraints make them an attractive addition to an investor’s portfolio. By understanding the merits and consequences of investing in these metals and considering factors like risk tolerance, market research, diversification, and investment vehicles, you can make informed decisions and harness the power of platinum and palladium investments.
As you venture into the world of precious metal investing, remember to stay informed, be patient, and maintain a diversified portfolio to help you navigate the exciting and ever-changing landscape of platinum and palladium investments.
Stack safely!
