Following the high demand for gold bars and silver coins, US warehouse retailer Costco introduced a new precious metal this month – platinum bars. Platinum shares similarities with gold, yet crucial differences exist. So, what factors should investors be aware of before delving into this investment opportunity?
Costco began selling gold bars in August 2023, sparking a buying frenzy among members. Analysts from JPMorgan predict that Costco is currently selling gold bars worth $100 million to $200 million per month. Sharp-eyed consumers noted that Costco unveiled platinum bars earlier this month. A 1-ounce platinum bar is priced at $1,089, slightly higher than the current spot price of platinum, which has been hovering around $1,000 per ounce recently.
Only Costco members can purchase this precious metal through the company’s website.
With the global economic environment in turmoil and tensions lingering in the Middle East and Ukraine, investors are increasingly seeking safe-haven assets.
Investors often flock to gold, especially when concerned about the potential depreciation of the US dollar due to inflation or other factors. This drives up the price of gold significantly. In the past 12 months, the price of gold has surged by 46% to around $2,700 per ounce.
According to CNBC, Rob Haworth, Senior Investment Strategist at U.S. Bank Wealth Management, stated: “Given the performance of gold, attention is turning towards other assets that may not perform as well as gold but could provide value to investors.”
In other words, while the price of platinum has not seen significant changes amid the recent surge in gold prices, precious metal investors may wonder whether platinum could be the next big hit.
The Wall Street Journal cited Edward Sterck, Research Director at the World Platinum Investment Council, who claimed that compared to gold, platinum is a relatively newer commodity in the market. Platinum was only officially confirmed in the 19th century due to its presence alongside other metals in ores and its high melting point. He also noted that platinum is about 30 times rarer than gold, indicating that investors are less familiar with platinum. Robert Minter, Head of Investment Strategy at Abrdn, stated that the platinum investment market still represents only a small portion compared to the gold and silver investment markets.
Abrdn manages the largest platinum exchange-traded fund in the market.
Platinum and gold share some similar qualities but also crucial differences. Both being precious metals, at least part of their value comes from their scarcity. As investments, their trends often differ from those of traditional assets like stocks and bonds.
Global X ETFs analyst Trevor Yates told CNBC that such assets can serve as a way to lower portfolio risk by ensuring that all assets do not move in the same direction simultaneously.
However, potential investors should understand some key distinctions between gold and platinum. Firstly, gold has a long-standing value dating back to ancient civilizations and is still considered a stable asset, with demand mainly coming from institutional and retail investors. Conversely, the demand for platinum is closely tied to its utility as an industrial material.
“Platinum is a critical component in traditional internal combustion (gasoline-powered) and hybrid vehicles,” Yates explained. Therefore, the demand for platinum is more cyclical than that for gold.
In recent years, expectations of platinum’s decreased use in catalytic converters for electric vehicles have dampened enthusiasm for the metal. Nevertheless, the automotive industry may not soon break free from its reliance on this metal.
According to data from Metals Focus, demand for platinum in the automotive sector has remained robust, growing 17% from 2019 to 2023. Demand for platinum group metals, including those used in hybrid vehicles, has actually increased.
Additionally, another factor to consider before investing in platinum is that its supply is unlikely to increase rapidly.
While gold is primarily mined individually (sometimes alongside copper and zinc), platinum is typically mined alongside other metals like palladium, rhodium, and iridium. Yates advised that investors interested in platinum would be wise to “really pay attention” to the dynamics of all platinum group metals since any fluctuations in these metals could impact miners’ profits and consequently affect platinum output.
Sterck, Research Director at the World Platinum Investment Council, mentioned that the soft prices of palladium and rhodium have put economic pressure on mining companies, restricting the quantity of platinum mined alongside them. South Africa accounts for about 70% of the global mineral resources, and the country’s frequent power outages have stressed supply over the past few years.
The debate over whether to invest in precious metals such as gold and platinum has long existed in the investment world.
Many investors caution against heavily investing most of a portfolio in any flashy asset. Haworth pointed out the challenge that these assets do not provide investors with steady cash flow, such as income or dividends. Additionally, the prices of these assets need to rise over time for investors to profit. Furthermore, investors must sell these assets to realize their value.
This sentiment echoes legendary American investor Warren Buffett’s disapproval of investing in gold. Buffett famously said that gold does not generate income and that holding an ounce of gold will merely translate to owning an ounce of gold eventually.
Nonetheless, some investors see value in investing in precious metals, as they fear that the US dollar may lose its value one day.
Yates suggested that for those in this camp looking to invest in platinum, Costco could offer a relatively attractive price. This reputable retailer also adds credibility for customers, reducing concerns about fraud.
However, Minter from Abrdn warned that physical platinum bars, like gold and silver, might be more challenging to sell compared to exchange-traded funds (ETFs). He explained that investors selling platinum bars to dealers may easily incur a 10% loss in value, as dealers face significant risks in purchasing from retail investors.