During times of stock market volatility and inflation, many investors devote a portion of their portfolios to precious metals as a hedge against economic instability, which is why the demand for gold as well as silver has been on the rise. Since ancient times, these precious metals have been prized by civilizations around the world for their beauty as well as for their usefulness as tangible currency. Today, gold and silver can be traded in markets wherever you go.
Looking Beyond Gold and Silver
Precious metals investing can include more than traditional gold and silver, however, because industrialization has led to an increased demand for other metals with numerous practical applications. While gold and silver have some industrial uses, the Platinum Group Metals (PGMs) contain unique properties that have made them vital to the automotive, electronics and medical industries.
Palladium and Platinum and Their Many Uses
Although platinum and palladium have become increasingly more popular as jewelry, many people don’t realize how much they rely on these two metals. For instance, the catalytic converter that significantly reduces emissions from cars requires either palladium or platinum to work, and the ceramic capacitors found in electronic devices such as smartphones also contain palladium. Even some cancer drugs use platinum complexes to inhibit tumor growth, which makes these precious metals more valuable for practical use than their gold and silver counterparts.
More Rare Even Than Gold and Silver
Platinum and palladium are also more “precious” than gold and silver. When compared to the 1,782 tons of gold that mining companies pull out of the ground each year, the amount of platinum is significantly smaller at only 133 tons. In fact, platinum is one of the rarest metals to be found in the Earth’s crust. Palladium is also extremely rare, with only a handful of mines around the world fueling the growing industrial demand.
A Different Type of Investment Market
Considering how rare and important these precious metals are to the world, there is a surprisingly small investment market for them. While this is possibly due to the fact they have never been used as currency (except for platinum in Japan), many newcomers to precious metals investing have simply never heard of them or don’t know enough about them to invest with confidence. Lastly, these metals are tied more firmly to industrial demand, so their market value behaves differently compared to gold and silver.
Platinum and Palladium On The Rise
However, there are several reasons why platinum and palladium will not remain the underdogs of the precious metals market for long. First of all, most of the world’s supply comes from a handful of sources, and these have been showing signs of decreased production. Over 80% of all platinum, for instance comes from the Bushveld Igneous Complex in South Africa, but the nation has had trouble supplying these mines with the electricity and water needed to meet their production schedule.
Secret Stockpiles
Determining the supply of palladium has also been a problem since Russia keeps its stockpile a secret. When the tech industry was booming in 2000, the price of palladium jumped to record high at $1,100 a troy oz., but then Russia sold some of its stock and prices plummeted. There is reason to believe, however, that the once-enormous Russian stockpile is dwindling, which may mean that palladium will eventually reach price levels similar to that of platinum.
Growing Demand in the East
Both metals may also see an increase due to demand from developing nations such as China and India. Although the economic downturn tends to decrease production of luxury items such as cars and jewelry, these nations have been making significant inroads when it comes to technological development. Considering the fact that both countries make up about 36% of the entire world population, the potential market for these nations has been the hot topic for many businesses and investors.
Green Laws May Increase Demand in the U.S.
New legislation may also affect the demand for platinum and palladium in the United States. Although California has required catalytic converters in cars for years, other states have been following this trend due to increased problems with air pollution. There is also some talk about passing a federal law requiring catalytic converters for all types of engines. Although such a law may never come to pass, the fact that these metals reduce harmful emissions and are major components in hydrogen fuel cells suggests that the demand will grow for them as more “green” vehicles become available.
Outlook Good Yet Not Without Risk
When it comes to precious metals investing, then, the future looks bright for platinum and palladium, though like all investments, these are not without risk. The market for both of these metals is still relatively small, which means that they suffer from lower liquidity than gold or silver. Also, automotive manufacturers may someday find a substitute, and since about half of the demand stems from this industry, the value of platinum and palladium would drop significantly. No such substitute remains on the horizon, however, and since more industrial applications are being discovered for these metals each year, their practical value remains steady.