Why is platinum less popular?
Platinum is significantly less popular and less widely traded compared to gold. But why has platinum lagged behind gold, despite being much rarer? There are a few key reasons platinum has not reached the same level of popularity as gold.
Platinum‘s rarity hasn‘t driven investment demand
Platinum is over 30 times rarer than gold in the earth‘s crust, with annual global platinum mining output around 6.5 million ounces versus 100 million ounces of gold. However, rarity alone hasn‘t been enough to make platinum as popular an investment asset as gold. There are a few factors dampening investor demand for platinum:
- Gold has a much longer history as a monetary asset, stored value, and status symbol. Platinum was only distinguished as a precious metal about two centuries ago.
- Platinum‘s rarity means smaller overall market size and lower liquidity. This can limit appeal for large institutional investors.
- Concerns over platinum‘s primary supply source, Russia, has weighed on market sentiment. Sanctions disruptions pose risks.
So while platinum has the quality of scarcity, it hasn‘t necessarily translated into rising investment demand. Gold still dominates the precious metals space.
Platinum demand relies heavily on auto industry
Another reason platinum is less widely held as an investment asset is its narrower demand profile. According to the World Platinum Investment Council, around 40% of total platinum demand comes from the automotive industry, mainly for catalytic converter manufacturing.
Compare this to gold, which has many more diversified uses in jewelry, electronics, dentistry, and of course investment. This breakdown of demand over the last decade shows gold‘s more balanced demand profile:
| Sector | Gold | Platinum |
|---|---|---|
| Jewelry | 50% | ~30% |
| Investment | 30% | ~10% |
| Technology | 10% | ~5% |
| Other industry | 10% | ~55% |
With platinum heavily dependent on the auto industry, it is more exposed to swings in that single sector. Demand has slumped as automakers cut back due to chip shortages. Gold has proved more resilient thanks to its diversified demand.
Platinum futures trading is a fraction of gold‘s
One area where platinum‘s lack of popularity shows up clearly is in the futures markets. Trading volumes for platinum futures contracts are just a small fraction of gold futures activity.
In 2022, platinum futures contracts traded about $75 billion in total volume on the NYMEX exchange. Gold futures traded over $27 trillion in contract volume, dwarfing platinum trading. Gold futures are more widely held by institutional investors like hedge funds for speculation, portfolio diversification, and risk hedging.
The much smaller futures market for platinum also results in lower liquidity. This can exacerbate volatility, as seen in early 2022 when Russia invasion fears caused an 11% platinum price spike in one day. The gold market‘s deeper liquidity helps moderate against such sharp, temporary price swings.
Outlook for platinum to gain popularity
While platinum is currently less widely held as an investment, there are some positive signs it could gain popularity:
- The platinum market has been in sustained deficit over the last several years, slowly reducing above-ground supplies. Scarcity may eventually turn investor attention to platinum.
- Growing interest in hydrogen fuel cells for green transportation could significantly boost industrial demand for platinum. Fuel cells use substantial amounts of platinum.
- Platinum remains very undervalued compared to gold from a historical perspective, even adjusting for rarity. This creates potential upside.
- Expanding retail investment demand through platinum ETFs and bullion coins could increase overall investment holdings.
Platinum probably won‘t supplant gold as the most popular precious metal anytime soon. But for investors looking to diversify their precious metals portfolio, platinum offers compelling long-term value.
Conclusion: Platinum is overlooked but has investment potential
In summary, platinum has struggled to match gold‘s widespread popularity for a variety of reasons – lack of cultural and historical significance as an asset, lack of diversity in demand, small market size, and production concentration in Russia.
However, I believe platinum represents a unique precious metal investment at current low prices. It is far rarer than gold and has strong fundamentals, with demand outstripping tight supply over the last decade. For investors with a long-term outlook, adding some platinum to a precious metals portfolio could provide excellent value.