Platinum has traditionally outperformed gold, but its prohibitive pricing made it difficult to invest in. Now, with gold prices at par with platinum, it may be the right time to bet on it.
Outshined by the glitter of gold is a more rare, but equally precious, metal—platinum. Investing in this noble metal has not caught up in the country mostly because, till date, it has commanded a higher price than gold. However, the zooming price of the yellow metal over the past few years has made platinum more competitively priced (see graph). Currently, one gram of platinum costs 3,062 compared with 3,178 for gold (as on 24 October). "Since the price of platinum is lower than that of gold, it's a favourable time to buy it," says Prithviraj Kothari, president, Bombay Bullion Association.
Where is platinum headed?
Platinum was quoting at a premium of nearly 150% to gold till a few years ago, but its price is almost level to that of the yellow metal now. In fact, over the past year, its trading price has been lower than that of gold. Will platinum continue to stagnate or will it beat gold again after a few years? Experts believe that the current situation may continue for some more time. This is because the global economy is going through a painful restructuring, and the recent jump in gold is due to the easy monetary policies followed by the global central banks to support their economies, as well as the investors' decision to move their money to a safe haven like gold. Till the global economies stabilise and central bankers start withdrawing excess liquidity, gold may move up faster than quasi-precious metals like platinum and silver.
Though platinum may remain under pressure in the immediate future, its outlook is bright in the long term. "Platinum may remain in the range of $1,500-1,700 an ounce ( 2,857-3,238 per gram) in the next few months. However, it should recover within a year," says Naveen Mathur, associate director, commodities & currencies, Angel Broking.
What are the factors that point towards this bullishness? Firstly, there is no fall in demand from investors or jewellers. In fact, the global platinum jewellery demand increased by 3% in 2011, and with the prices already at lower levels, the demand is expected to hike further this year. China is the biggest consumer of platinum and the appreciation of the yuan against the dollar will also help the Chinese consumers.
Secondly, the key platinum producing countries (South Africa, Russia and Zimbabwe contribute around 93% to the global mine production) are struggling with several constraints, such as electricity shortages and increased labour costs, and are unable to increase the production substantially. Platinum prices jumped by 8-9% in September due to labour unrest in the South African mines (it contributes 74% to the global output). While mine production contributes around 80% to the total supply, recycling of platinum from auto catalysts scrap (13%) and jewellery scrap (7%) makes up for the remaining. Since users are delaying vehicle replacement, even the recycling segment has not expanded.
The lower production or increased investment/jewellery demand has failed to lift platinum prices because the global auto industry, which constitutes around 40% to the global platinum consumption, is still suffering from the economic crisis. This means that the price of platinum is expected to remain rangebound with a downward bias in the near term. However, the global economy is going to recover at some point, and when this happens, platinum will start outperforming gold. Buying options
Jewellery
While most consumers in the country prefer to buy platinum in the form of ornaments, they should be careful while buying jewellery. This is because while the making charges may vary depending on the
size and design of the jewellery, these are
double that for gold ornaments. "Platinum is much harder than gold and needs a very high temperature to melt it. Therefore, platinum jewellery is made only in a few places, which pushes up the labour cost," explains
Hasmukh Bafna, president, Gold
Chains & Jewellery Wholesalers Welfare Association. Platinum is also more dense than gold (an identical ring in platinum would be around 40% heavier than the one in gold) and, hence, costlier.
Another thing buyers need to be sure of is the purity of the metal. Platinum is mixed with other metals to make jewellery and the most commonly used are those from the platinum group, such as iridium, palladium, ruthenium and rhodium. Since most of these metals are cheaper compared with platinum, buyers should make sure that the jeweller quotes a lower price than that of pure platinum in the market. The jewellery should be hallmarked, specifically mentioning its purity. For instance, jewellery containing 85% platinum will be marked as 850, while that consisting of 95% of the metal will be marked as 950.
Traditionally, Indians buy jewellery as a back-up plan to bail them out during difficult periods. Ideally, when you sell jewellery, you lose out on the making charges, but in reality, the loss percentage is much more than that for gold. This is because the demand is low, making it difficult for jewellers to resell ornaments. The other issue is checking the purity of the metal. "Almost all jewellers can check the purity of gold themselves and pay the price accordingly, but very few have testing facilities for platinum," says Kothari. So, even if you have no plan to resell the jewellery, ask the retailer about the buyback facility at the time of buying the ornaments. Also, check whether you will get back cash or you will only be able to exchange it for another ornament.
Bars and coins
Since platinum has begun emerging as an investment option, some high-end jewellers have started selling pure platinum (purity of 999) coins and bars. These are available in weights of 1 g, 5 g, 10 g, 50 g, 100 g, etc. In this case also, you need to ask about the buyback facility, expected price deduction and authenticity certificates.
E-platinum
Unlike for gold, there is no exchange traded fund or savings fund for platinum. The only way to buy platinum in paper form is through the e-platinum route available on the National Spot Exchange. This is the best mode for investors as these units are held in the demat form and there are no 'deductions' at the time of selling them. Since the trading of e-platinum has started recently, is there enough volume for investors to participate? "There is enough liquidity in the e-platinum space though the bid-ask price may widen once in a while," says Praveen Singh, senior commodities analyst, Sharekhan.  |
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