Gold vs
platinum in investing
Article published as on Thursday, 17th September, 2020 at 10:00 a.m.
|
properties |
Gold |
platinum |
|
Colour |
Gold/yellow |
Metallic
greyish white |
|
density |
19.3
grams/cm3 |
21.45
grams/cm3 |
|
Melting point (Celsius) |
1064 |
1768.3 |
|
Boiling point (Celsius) |
2700 |
3825 |
|
Hardness |
2.5 |
4.5 |
|
Malleability (ounce: 28.35 grams) |
300
(sq.
ft.) |
99.19
(sq.
ft. ) |
|
Ductility (1 gram) |
2.4
km |
16.5
km ( source) |
|
Price
per ounce (31.11 grams) (29/8/20
USD INR: 73.13) |
1940 $ |
940.70 |
|
Annual
production (mined) |
Gold |
platinum |
|
2017 |
3494
MT |
173.64
MT |
|
2018 |
3556
MT |
173.50
MT |
|
2019 |
3531
MT |
172.77
MT |
Interesting stats on
gold hub
SUPPLY & DEMAND ANALYSIS
|
GOLD |
supply |
in MT |
|
|
||
|
||||||
|
year |
mined |
recycled |
total |
LMBA price / USD once |
||
|
2015 |
3336.3 |
1103.4 |
4440 |
1160 |
|
|
|
2016 |
3459.7 |
1263.5 |
4723 |
1251 |
|
|
|
2017 |
3493.6 |
1140.1 |
4634 |
1257 |
|
|
|
2018 |
3556.0 |
1160.1 |
4716 |
1268 |
|
|
|
2019 |
3530.9 |
1296.2 |
4827 |
1393 |
|
|
|
GOLD |
demand
|
in MT |
||||
|
year |
jewellery |
technology |
investment |
central
bank |
total |
|
|
2015 |
2459.8 |
331.7 |
962.3 |
579.6 |
4333 |
|
|
2016 |
2103.9 |
323.0 |
1614.6 |
394.9 |
4436 |
|
|
2017 |
2242.3 |
332.6 |
1315.8 |
378.6 |
4269 |
|
|
2018 |
2248.4 |
348.8 |
1165.2 |
656.6 |
4419 |
|
|
2019 |
2122.6 |
326.0 |
1273.4 |
667.7 |
4390 |
|
Here we can see the all in sustaining production cost of gold is in the range of 800$ to 950$ range for last 5 years, serving as an incentive for gold miners.
|
platinum |
supply |
in MT |
|
||||||
|
year |
mined |
recycled |
total |
|
|||||
|
2015 |
174.63 |
48.34 |
222.97 |
|
|||||
|
2016 |
171.09 |
52.16 |
223.25 |
|
|||||
|
2017 |
173.64 |
53.58 |
227.22 |
|
|||||
|
2018 |
173.50 |
54.71 |
228.21 |
|
|||||
|
2019 |
172.77 |
61.38 |
234.15 |
|
|||||
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
platinum |
Demand |
in MT |
|||||||
|
year |
automotive |
jewellery |
industrial |
investment |
total |
||||
|
2015 |
95.40 |
80.51 |
47.77 |
8.65 |
232.32 |
||||
|
2016 |
97.95 |
71.02 |
50.75 |
15.17 |
234.88 |
||||
|
2017 |
94.26 |
69.74 |
47.77 |
7.80 |
219.57 |
||||
|
2018 |
87.88 |
63.64 |
54.15 |
0.43 |
206.10 |
||||
|
2019 |
82.04 |
59.53 |
61.93 |
35.49 |
238.99 |
||||
|
|
|
|
|
|
|
||||
(Source is from world platinum
investment council link here)
While south Africa is source of
approximately 70% of worlds platinum over the years from 2015 to 2018
production cost have varied from 1100$ to 800$ per ounce to produce.
Hypothetically metals prices
should not fall below production cost, so this makes a strong case for rise in
platinum prices from the current levels of 950$ per ounce.
Other factors are, in South
Africa labour constitutes 50 % of the mining cost and the labour union there
are demanding rise in wages.
For this same reason the platinum
production is expected to be reduced and as rhodium and palladium are by
products from platinum mining their prices have increased.
Whereas platinum prices have not
increased, the reason for such mismatch is because platinum like gold is held
in bar form in the reserves so there is enough reserves of platinum to
compensate any supply losses.
Another reason platinum has
underperformed gold is because that gold is considered as safe haven investment
whereas platinum is industrial metal.
The graph here shows return of
gold during times of recession and return of platinum during same times.
Gold has performed well compared
to platinum at times of economic recession, as we can see from the graph below.
 |
Also in 2020, recession due to
the pandemic has caused drop in demand from automotive sector, once the economy
start improving and auto sector starts performing well we may see platinum
prices rise again in the future.
As we can see from the data that major use of platinum is used in catalytic converters of auto sector (catalytic converters:
these are used to convert harmful gasses into less harmful ones)
The argument
given for lack of platinum demand
going forward is that due to the current Electric vehicle revolution the use of
catalytic converters will vanish in the future. Hence the long term
fundamentals of the platinum looks weak.
Counter argument
given: platinum is mainly used in diesel
engine based vehicles.
As diesel creates pollution but offers better
mileage compared to petrol counterparts.
As we can see from the table.
Distribution
of the platinum demand for automobiles worldwide in 2017, by sector (source: Statista)
Most of the platinum is used in commercial vehicles
which are unlikely to be fully replaced by electric vehicles in next 10 years.
So we can be assured that for at least next 10 years the demand from catalytic
converters is going to stay.
Apart from that company called Anglo American which
is leader in platinum mining has stated that with more research and development
they are coming with varied uses of platinum.
One such example is that use of platinum in
hydrogen fuel cell technology, which has only one emission h2o
(water).
(People have
doubts over the use of hydrogen fuel cell over the lithium cell EV, but it’s suitable
for larger vehicles, hydrogen fuel and lithium ion technology are like diesel
and petrol of current world, however currently production of hydrogen is costly
making the technology inefficient)
This example is just to show that there could be
many innovations done using platinum.
Coming to jewellery
Why jewellery is made of gold or silver is because
of its property known as non-corrosion.
Just a fact: for the official definition of a kilogram the
cylinder used is made of platinum due to its non-corrosiveness property
Coming to jewellery as we can see from data in 2019
consumption of gold was 2122.6 MT and platinum was 59.53 MT.
Even if 10% of total golds jewellery demand shifts
towards platinum, then only the demand from jewellery can consume up the
current total supply of platinum and prices can be expected to trade at premium
to gold.
White gold jewellery which is 18 Karat, it has a
thin coating of rhodium (a member of platinum group metals) thus giving it
mirror like metallic shine, if we compare the colour both have same
colour.
But for platinum jewellery we can wear it in pure
and natural form, which preserves it colour, which wears off in white gold.
Also platinum is better for diamond studded jewellery.
As we can see in this ‘ratio
graph’ that platinum has traded on an average at 1.5 times the value of gold.
It has been in significant
discount to gold 4 times over the last 40 years and each time it has risen
above the value of gold. It’s expected that this time as well the price would
at least match up the prices of gold.
Comparison on modes of investment in precious
metals
Investment in precious metal
|
GOLD
|
PLATINUM |
|
Online investment method
|
Online
investment method |
|
We can invest in gold using ETF's (Nippon gold
ETF trades at around Rs 47) |
In platinum we don’t have online option to invest
as of yet. Also on MCX derivative market we have gold and
silver but no platinum.
|
|
Also we can invest in using SGB' scheme by the government
(which earns interest of approx. 2.5% on nominal value)
|
There is a long way to go before online option to
invest in platinum are available in India.
|
|
Physical
bars: | Physical bars: |
Physical gold
bars can be counterfeited.  |
Platinum is a special metal as its density is
even higher than that of gold, making it impossible to counterfeit this
metal.
|
|
How? In past there have been gold bars with tungsten
(density: 19.3 gram/cm3) inside them as these two metals share almost the
same density.
|
Compared to gold its density is 10% more and
hence if the metal is not real platinum |
|
The counterfeit gold cannot be identified even by
trained eyes.
|
We can easily find real platinum just by
observation, comparison and weighing the bar. |
With the above study it’s clear that, if one needs to invest in precious
metal then for
Physical
bars, platinum deserves a consideration over the gold.
And for
investing in gold, it’s better to invest through online modes.
Indian scenario gold v/s platinum
We can’t just buy gold and
platinum at international prices.
In India we have to pay various
taxes on them making it expensive to buy. So let’s check ground reality and
prices of each metals.
|
particulars |
GOLD |
Platinum |
|
1)
Price per ounce USD$ |
1930 |
892 |
|
2)
Price per 10 grams/INR (USD/INR
:73.53) |
45631 |
21089 |
|
3)
Levies and taxes |
15.5%
(refined gold) |
23.2% |
|
4)
Approx. prices |
52703 |
25982 |
|
5)
CMP (mcx) |
52,750 |
(N.A)
|
|
6)
Price on online stores |
55525
(link) |
29658
(link) |
|
Premium
to approx. prices (no.4) |
5.78% |
14.15% |
|
Premium
to pre-tax price (no.2) |
21.68% |
40.77% |
Well from the above table one can
understand that let the international price for platinum be below 900$ but the
actual buying cost is more than 40% costly.
Apart from this, if you wish to
sell your metal in case of emergency gold provides better buyback value ( if
24Karat) compared to platinum.
Clearly
future of platinum is bright but not for Indian investors.
Now this is dilemma
If we exclude Indian scenario
then, buyers of precious metals shall
prefer platinum jewellery and platinum bars over their gold counterparts.
But in India due to huge premium
on platinum prices, it makes platinum less attractive overall.
But still platinum trades at
50.74% discount to (approx. no.4) gold
prices. Thus even if it matches gold price it will outperform gold by 100% in
term of comparative returns.
Hopefully in next years to come liquidity and trading in platinum is enhanced, leading to better purchase and selling price
(click here to download PDF form of presentation.)
(This
is just a study to express my view on precious metal investing.)
PDF attachment.
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