Analysis of Historical Trends in Platinum Prices: Is There Still Value in Investing Even During Price Drops?

Platinum is the new star of precious metal investment. If gold is the original safe-haven asset, platinum can be considered a new star player with wide industrial applications. While the world's gold production is 3,332 tons, only 165 tons of platinum are produced. Moreover, the market is dominated by just two countries: South Africa and Russia.

I am fascinated by the allure of platinum. Its malleability is higher than that of gold, and its industrial applications are extensive. The automotive industry uses a large amount of platinum in catalytic converters to reduce emissions, and it is also an indispensable material in turbo engines, medical devices, computers, and the oil industry. The commonly known decorative uses are actually not the primary applications.

Factors Affecting Platinum Prices

Like other commodities, the price of platinum is influenced by the fundamental principles of supply and demand. When the economy is strong, the demand for platinum increases, leading to a rise in price; during a recession, demand decreases, causing prices to fall.

The fluctuations in the U.S. real interest rates, the trade-weighted dollar index, and gold prices also affect platinum prices. Particularly on the supply side, the fact that only South Africa and Russia are producing countries greatly impacts prices. In March 2008, when South African mines faced power supply issues, platinum prices soared to $2,252 per ounce.

However, in November 2008, it plummeted to $774. The turmoil in the automotive industry also had a serious impact on platinum prices. The production halts that many automakers faced during the COVID-19 pandemic over the past few years also contributed to price fluctuations.

Historical Trends of Platinum Prices

Platinum prices have historically experienced significant fluctuations:

• Late 1970s: Price increase due to rising demand for automotive exhaust catalysts
• 1980s: Price fluctuations due to supply disruptions from political instability in South Africa
• 2000 to 2008: Prices surged significantly, reaching a peak of over $2000 per ounce in 2008.
• 2008 Financial Crisis: Gradual recovery after the price crash
• 2011 to 2015: Decline again due to global economic slowdown and decrease in Chinese demand.
• Since 2019: Mining facilities have been paralyzed due to power issues in South Africa.
• March 26, 2020: The South African government implements a 3-week lockdown, halting operations at all mines.
• March 2020 - Early 2021: Prices rebounded strongly with the economic reopening after COVID-19.
• From 2021 to 2022: Price decline due to semiconductor shortages in the automotive industry.
• End of 2022 to 2023: Price increase expected due to rising demand from the lifting of COVID-19 restrictions in China.
• 2023 to Present: Prices fluctuate within a range, with conflicting effects from South Africa's power shortage issues and the Federal Reserve's hawkish policies.

Historic Highs and Lows:

• All-time high: In 2008, the all-time high of $2200 per ounce (due to supply shortages in South Africa and increased automotive demand)
• Low: Approximately $360 in 1998 (due to the global economic slowdown caused by the Asian financial crisis)

Methods of Platinum Investment

Unlike gold and silver, there are few investors studying the platinum market, but they are very specialized. They focus more on technical analysis than emotional factors and tend to enter and exit the market faster than general investors due to their high risk awareness.

There are the following methods for platinum investment:

1. Physical Platinum Investment

While owning the physical item, there are sales taxes, insurance fees, and storage fees. It is harder to cast than gold, and the premium is also higher.

2. Platinum ETF Investment

There are no taxes related to physical assets, and only management fees are required, but you do not own the rights to the physical assets.

3. Platinum Futures

Standardized exchange contract that fixes the future price. Leverage trading is possible, but advanced market knowledge and risk management skills are required.

4. Platinum CFD (Contract for Difference)

One of the most popular and simple methods of product trading. Profit can be obtained from price differences without the physical transfer of goods. Two-way trading is possible, allowing for large transactions with a small margin, but the risks are also significant.

Countermeasures for Declining Platinum Prices

Various strategies can be considered during a price decline:

Short Selling:

Profit by repurchasing at a lower price in the future. Means include purchasing put options and selling futures.

Holding or increasing purchases:

If you determine that the long-term outlook is bright, continuing to hold or buying more during price declines are also options. A deep understanding of the fundamentals of the market is a prerequisite.

Diversification of investment portfolio:

If you are concentrating your investments in platinum, you can mitigate risk by allocating funds to stocks, bonds, and alternative assets.

Comparison of Palladium, Platinum, and Gold

While gold is a safe-haven asset, platinum and palladium have wide industrial applications. During the COVID crisis, the industrial demand fell due to supply chain issues for automobile manufacturers, and particularly palladium dropped from a record high of $2754 per ounce at the end of February 2020 to $1743 by mid-March, a decline of 36%. In contrast, gold, as a safe-haven asset, was not significantly affected.

Palladium resembles platinum in appearance, and both are used in automotive catalytic converters; however, palladium is primarily used in gasoline vehicles, while platinum is mainly used in diesel vehicles. At the end of September 2017, the price of palladium surpassed that of platinum for the first time in 16 years.

Points to Note for Platinum Trading

Always go with the flow.

Platinum trading is complex, and you should adhere to the basics of buying in upward waves and selling in downward waves. Avoid counter-trend trading unless there is a significant reversal.

Set profit taking/stop loss points

Setting a stop-loss line is essential to keep funds within manageable limits. Since the market is difficult to predict, it is advisable to diversify investments to spread risk.

Platinum investment is a relatively new investment method. Investors should understand the factors that influence prices and choose an investment approach that suits them through comparisons with other precious metals. I myself am fascinated by the fluctuations of the platinum market, but due to its complexity, I always strive to take a cautious approach.