Why Platinum Might Be Even Better Than Gold

In this edition of Finshots, we explore the recent surge in platinum’s value and its potential role as a ‘safe-haven’ asset.

The Story

My fascination with platinum began in childhood when my uncle remarked, “People chase after gold, but it’s platinum and diamonds that hold real value.” This observation resonated with me, resurfacing years later as I prepared for my wedding. While shopping for jewelry, I found myself naturally comparing gold to platinum, much to the chagrin of my gold-loving family. What I discovered was quite intriguing.

Platinum is not merely another precious metal; it’s part of the coveted “platinum group metals” (PGMs) alongside palladium, rhodium, ruthenium, iridium, and osmium—some of the rarest Earth elements. Notably, platinum stands out as the most significant among them.

Its properties are remarkable: platinum is highly dense and resistant to rust, tarnish, and chemical reactions, with one exception—“aqua regia,” a rare chemical concoction that also dissolves gold. Holding a small cube of platinum feels unusually weighty; it’s reminiscent of condensed time itself. Scientists suggest that much of it originated from meteorites that impacted Earth billions of years ago, making it, in essence, a piece of space metal.

The rarity of platinum adds layers to its allure. Approximately 70% is sourced from the Bushveld Complex in South Africa, known as the “platinum heart of the world.” Another 10-12% comes from Russia, while Zimbabwe and North America account for the remainder.

However, extracting platinum is no easy feat—mining 10 tonnes of ore yields only a few grams of the metal. It can take six months to refine just one ounce of pure platinum.

Fast forward to today, and while gold has been grabbing headlines, platinum has been steadily outperforming precious metals, with an increase of approximately 85% compared to gold’s 52% returns this year. To understand this, we must consider the fundamentals of supply and demand.

Demand for platinum has two main drivers.

Demand Drivers

First up is the automotive sector. Nearly 40% of all platinum produced is utilized in car engine catalytic converters, which convert harmful exhaust gases into less toxic forms. Historically, automakers favored palladium for petrol engines and platinum for diesel. However, when palladium prices surged past $3,000 an ounce in 2022, manufacturers began transitioning to platinum. According to the World Platinum Investment Council (WPIC), this shift could generate an additional 850,000 ounces of demand this year—roughly 12% of global supply.

Secondly, there’s industrial demand, which encompasses chemical, glass, and medical manufacturing, accounting for around 30% of the total consumption. Notably, platinum plays a crucial role in hydrogen fuel cells, which convert hydrogen into electricity. As governments invest billions into green hydrogen initiatives, platinum may emerge as a key player in this transformation. The remaining demand comes from jewelry (about 25%) and investments (roughly 10%).

Supply Challenges

On the supply side, the Earth simply doesn’t yield enough platinum. South Africa’s mines are aging and energy-intensive, and the country’s ongoing electricity crisis has exacerbated the situation. Frequent blackouts have stalled operations, delayed processes, and even led to flooded shafts. Meanwhile, Russia, the second-largest producer, faces sanctions, export issues, and aging infrastructure.

This combination has resulted in what the WPIC describes as a “record deficit”—nearly one million ounces short last year.

However, before labeling platinum as a guaranteed investment, consider its historical challenges. Why haven’t central banks, the largest buyers of precious metals, embraced platinum like they have gold?

The Philosophical Divide

The answer lies in principles rather than rarity. Reserves are about trust and usability; gold has centuries of confidence behind it. It behaves like money—standardized 400-ounce bars and unparalleled liquidity in the precious metals market. This is why, when the IMF established the global reserve framework, gold became the cornerstone asset tracked by the IMF’s database (COFER)—but not platinum. As a smaller, more cyclical market (only about 5-6% of gold output), platinum isn’t liquid enough for central banks to use as a geopolitical hedge.

In fact, central banks avoid not just platinum but also silver and palladium. These metals lack recognition as monetary reserve assets within the international banking system.

Ultimately, gold thrives on historical significance and psychological trust, while platinum’s value stems from its industrial applications. During economic slowdowns, the psychology governing gold often overshadows the chemistry of platinum. This explains platinum’s nearly 60% price drop during the 2008 crisis and again after scandals impacting diesel engine markets.

Note: In 2015, the US EPA discovered Volkswagen was rigging emissions tests, allowing vehicles to exceed legal nitrogen oxide limits significantly. This incident became known as Dieselgate.

Historically, platinum has dipped during major US recessions. As its demand is heavily industrial, a slowdown results in decreased utility for platinum, unlike gold, which tends to rise. This has contributed to platinum lagging behind gold and silver in investment demand.

“What, then, makes platinum an investment opportunity now?” you might be wondering.

There isn’t a straightforward answer, but understanding that precious metals follow cycles can guide potential investors. Platinum moves in phases like any other precious metal.

Key Indicators

To assess the current cycle, one can analyze the capex-to-depreciation ratio. This metric indicates how much mining companies are reinvesting to replace aging assets. Presently, this ratio for platinum is at a historical low. Miners are not investing enough into new mines or updates. Platinum output peaked at around 8 million ounces in 2019 and has been on a steady decline since. Even if prices rise, it could take years for supply to catch up.

Although electric vehicles may reduce traditional car demand, approximately 56% of total vehicle sales still consist of internal combustion engines, including trucks and hybrids requiring catalytic converters for years to come. Coupled with low inventories, lengthy mining cycles, and hesitant investments, even small fluctuations in demand can drastically elevate prices.

When supply from mines can’t meet demand, buyers turn to the spot market, leading to price surges. Old jewelry and car parts provide a backup supply, but this market is slow-moving and insufficient (around 20% of overall platinum supply in 2024) to satisfy current demand.

Investor Considerations

For Indian investors, options are limited. Currently, India lacks a platinum ETF, but physical bars or coins can be purchased from select refiners or through global ETFs. Note that physical platinum bars (without jewelry modifications) incur a 3% GST upon purchase and are subject to capital gains tax upon sale. While these options may not seem particularly enticing, they can serve as a means to diversify safe-haven investments.

If you choose to invest, be prepared for volatility. Expect influences from EV market developments and keep in mind that ongoing deficits and conservative capital expenditures could imply upward pressure on prices.

As for platinum’s role in a ‘safe-haven’ portfolio, it won’t substitute gold in central bank reserves or your emergency funds. However, it represents a unique investment based on its scarcity and chemistry.

That’s why my compromise during wedding shopping was a platinum ring—one I could justify to both my family and my budget. Two years later, it still feels like wearing a slice of space, and my investment perspective has found new relevance.

What about you? Where do you stand on investing in platinum?

Until next time…

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