Platinum is a fascinating metal. It is one of the rarest elements in the world, the least reactive metal, and possesses remarkable anti-corrosion properties. Here are a few more fun facts about platinum:
- Our moon contains a higher amount of platinum than can be found on Earth.
- Platinum is one of the heaviest metals: the average human being is about the same weight as a six-inch cube of the precious metal.
- The largest deposit of platinum in the world is the Merensky Reef in South Africa.
Yet such an important and intriguing metal does not have an especially long market history. Investing in platinum has only become popular in recent decades.
Spot Price Definition
What is a spot price? A spot price for any commodity is the current price of that commodity for purchase right now in the market. Futures prices are agreements now to purchase a commodity within a specified amount of time in the future, at a specified price. The platinum spot price is not a straightforward result of the current supply and demand fundamentals of platinum at any given point, but instead is heavily affected by futures prices.
Commodity traders that specialize in platinum conduct most of their activities trading platinum futures contracts. Since platinum is extremely rare and the majority of it is produced in one country (South Africa), supply and demand fundamentals are fairly easily thrown off-kilter with economic, logistical, or political shocks. As such, traders tend to place educated bets as to where the price of platinum is going by trading platinum futures. The spot price of platinum today therefore is determined by the trading in futures, which represent how the market sees the changing supply and demand dynamics going forward. In this way, the near month platinum futures contract with the heaviest trading volume has the most influence over the spot price of platinum today.
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Where the Platinum Spot Price Is Set
The platinum spot price is set in two distinct places:
1. The London Metals Exchange (LME)
Prior to 2014, the London Platinum and Palladium Market (LPPM) set the London platinum price. Since 2014, the LME, the world’s largest exchange for the trading of industrial metals, has become the locus of the most important platinum spot price. The new price is called the London Bullion Market Association (LBMA) Platinum Price, and it is set twice daily at the LME. The LME is also a prime location for the physical trading of all metals, and as such, physical platinum trading is often done there.
2. The Tokyo Commodity Exchange (TOCOM)
The TOCOM also features a platinum spot price. Given the demand development in Asia over the past 20 years, it is not surprising that an important price quote has sprung up in the region.
Factors Influencing the Platinum Spot Price
There are several key factors that influence the price of platinum:
- Trading in platinum futures: As mentioned, trading in the platinum futures markets has heavy influence over the spot price for platinum. The New York Mercantile Exchange (NYMEX) is the biggest exchange for the trading of platinum futures, but the futures are also traded on the TOCOM.
- South African supply: As South Africa produces approximately 70 percent of the world’s platinum, any disruptions in the country can cause seismic shifts in the global market for platinum, as has happened with labor disputes in 2014 and power supply interruptions in 2008.
- Auto industry demand: One of the most important uses for platinum is in catalytic converters for internal combustion engines. The explosion of the Chinese automobile market over the past ten years drove ever-increasing demand for platinum, and now India appears to be heading down the same path.
Platinum Investment Guidance
As you can see, the spot price of platinum is a complex number with several factors influencing it. However, with expert guidance, platinum investment can be a fairly straightforward and enjoyable endeavor.
The professional platinum investing advisors at Scottsdale Bullion & Coin are here to help. Our experts can help you choose the right platinum products to help you meet your investment goals. Our team has over 100 years of combined experience in precious metals investing and has a reputation for our client-focused approach.