Investors buy platinum because of its physical rarity and unique value to technology. How and where you buy platinum will decide your costs and potential gains. Choosing the simplest, most cost-effective way to buy could save you 30% or more of your original outlay when you come to sell versus small platinum bars or coins.
Buying platinum is a rare decision
Buying platinum is a relatively new investment choice, especially compared with the 5,000-year history of gold and silver jewellery, bars and coins. It also remains a less common investment, taken by far fewer investors. Investment demand for physical platinum matches just one-tenth the value of silver investing each year. It equals less than 1% of investors' demand to buy gold.
This low exposure to platinum comes thanks to the metal's novelty and – until recently – a lack of cost-effective ways for investors to buy and sell.
Buying platinum coins or small bars brings the same problems as buying retail products in gold. Manufacturing and shipping means they cost far more per gram than the underlying 'spot' price. Keeping them at home, you then risk voiding your contents insurance unless you declare your precious metals and pay increased premiums each year.
You then lose money again when you sell, because retail dealers – if they are going to make a profit – must pay you less than they charge. You will also find it much harder to shop around for the best deal when you want to sell your platinum, because far fewer shops sell platinum products at present and fewer still will stand ready to quote you a competitive repurchase price.
There is a cheaper way to buy platinum. It enables you to keep it safe at very low cost, and sell it the moment you wish for full value. BullionVault began changing how private investors buy and sell gold over a decade ago, giving them direct access to the professional wholesale market and cutting their dealing costs by four-fifths. Silver was added to its choice of global vault locations in 2010. Today BullionVault users own $3.8 billion of precious metal between them.
You can buy platinum using BullionVault's award-winning technology, and hold it ready for sale – back onto the global wholesale market – in specialist vaults in London, heart of the world's professional bullion trade.
What drives platinum buying today?
Platinum was identified as a separate element only in the mid-18th Century. Scientists then rushed to find ways to use this "unmeltable" and "infusible" metal, convinced that its extraordinary physical properties made it uniquely valuable. They were right.
- Today's No.1 use – to reduce harmful gases and emissions from diesel engines – is barely four decades old. Automotive catalysts now account for 40% of the world's platinum buying each year. Ever-tighter environmental rules (led by the 'Euro' standards applied worldwide) tend to see more metal needed in each autocat;
- A huge range of other industries also buy platinum for the way it speeds up or improves the yield from chemical reactions. Platinum catalysts are vital in refining petroleum, and they help chemical manufacturers make key ingredients for fertilizers, plastics, synthetic fibres, dyes and medicines (7% of demand);
- Because it's heavier, harder and much rarer than gold, platinum is ideal for jewellery. That accounts for around one-third of demand today, led by the Chinese jewellery market;
- Platinum's high melting point (1768°C versus 1064°C for gold) makes it perfect for handling and forming molten glass, and for drawing glass fibres (2% of demand);
- The least reactive metal on earth, platinum is safely used in pacemakers and other medical implants, and it makes medical instruments visible to the surgeon during ‘keyhole’ surgery (3% of demand). Platinum-based anti-cancer drugs also block the replication of DNA in fast-reproducing cells;
- Because it does not corrode, platinum is a vital metal in many electrical (2%) and electronic (2%) technologies, including thermo-couples for measuring heat, high-performance spark plugs, LCD screens, and for coating hard memory disks in computer servers;
- Other industrial uses (4%) include fuel cells, invented in the mid-19th Century and used 100 years later to give electrical power to satellites and spacecraft. Nearly all of today's leading automakers have now developed their own fuel-cell vehicle that is 100% electric yet refuels in minutes rather than the hours it takes to re-charge batteries. A truly "clean energy" source, emitting water as waste, this looks a serious contender to replace the internal combustion engine in the 21st Century.
Investment demand to buy platinum
With industrial, chemical and technological uses dominating the market, that leaves just 7% of annual demand coming from investors wanting to buy platinum over the last 10 years, way below the average figure for gold (40%) or silver (21%).
That hasn't stopped platinum prices reacting to sharp inflows of speculative money. Investment buying saw platinum jump 330% between 1977 and 1980, when the metal averaged $677 per ounce. That beat gold (up 315% in 3 years) but not quite silver (up 350% on its annual average) as the 1970s' inflation crisis peaked.
Platinum prices rose again during what many analysts and pundits called the 'commodities supercycle' of the early 21st Century. The metal rose five-fold from its 1990s' lows to the spring 2008 peak above $2,000 per ounce. It then dropped back as the global financial crisis hit demand and prices for all natural resources.
Over the following 5 years, platinum prices averaged 73% of their peak, almost as stable as gold following its 2011 top and much firmer than silver, which halved on average over the half-decade to 2016.
Compared to gold prices, platinum has been at a discount to the less industrially useful metal on just four occasions during the past 40 years. The current period, its longest ever, is increasingly difficult to square with five consecutive years of demand outstripping supply. Investors who have not previously considered buying platinum may see this as an opportune entry point.
Why mining supply remains tight
Altogether, demand to buy platinum jumped 5-fold between 1960 and 1990, led by surging industrial and then autocat use. Mining output rose to meet it, helped by more efficient mining techniques and also by prices rising over 500% in US Dollar terms on an annual average basis.
Mine output continued to rise as demand growth steadied at the turn of the century, but it has struggled over the last decade. Peaking in 2006, annual output was 25% lower in 2014, when cost-cutting by platinum producers coincided with strike action by mine-workers in South Africa, blocking three-quarters of the world's new mining supply.
Like gold, platinum accounts for just 5 parts per billion of the earth's crust, but it tends to be more concentrated. That makes mining deposits harder to find. On current estimates, geological reserves of platinum equal just 1/8th of the world's unmined gold. Some 80% of that metal sits inside the Bushveld Complex in South Africa, now one of the most costly countries for gold mining. The world produces more crude steel every 4 seconds than it mines platinum each year.
How can you buy platinum today?
Jewellery remains the most popular way for people to buy platinum today. But as with gold or silver bracelets, necklaces and rings however, this doesn't offer an efficient way to invest, because the extra cost of making each item far outweighs the value you get back on re-selling. Unlike gold, where a large portion of Asian jewellery demand uses the precious metal as a way to store value, there is very little platinum jewellery purchased solely as an investment. The Kihei chain sold in Japan is probably the only jewellery product in platinum that is close to being an investment product.
Add the profit charged at each step of the supply chain, and even the plainest platinum jewellery can cost you twice the 'melt' value of the metal it contains in Western-world stores.
Small units of platinum bullion carry the same problem. Each gram or ounce you buy as a platinum bar or coin will carry much higher manufacturing costs than the large wholesale bars traded in the global market. Greater manufacturing, shipping and handling costs add to your purchasing price too. Again, you won't get all of that money back when you come to sell.
Added together, and with the retailer's final profit margin on top, this extra charge – over and above the wholesale price – is known as the 'premium'. Besides fabrication, shipping, marketing and retailing costs, premiums also depend on local demand and availability. That means investors face different pricing in different countries.
In the US, retail premiums on platinum coins typically run from 5-9%, rising to 7-15% in Germany and 10-20% in the UK. As the number of platinum products in the market increases some of this premium may fall but it is highly unlikely to ever get close to BullionVault's low costs.
What's more, anyone buying platinum in Europe must also pay VAT sales tax, because – like silver – it is classed as an 'industrial' metal, rather than a 'monetary' metal like gold. That adds a further 19% to your price in Germany, or 20% in the UK.
Buying platinum bullion bars
Because platinum bars are less decorative than coins, buying these plainer items is typically cheaper. The larger the bar, the lower premium you pay too over the 'spot' price of the wholesale market. But premiums still run from 2-4% for platinum bars bought from retail dealers in the US – even for bars large enough to meet the wholesale market's requirements.
In the UK and Germany, buyer's premiums start around 8%. On top you must also pay VAT if you wish to take personal possession of physical platinum, or store it outside the care of an accredited wholesale-market participant. VAT runs to an average 22% across the European Union. So the underlying price of platinum itself needs to rise by 30% or more before you get back to break-even.
Now think about storage. How will you keep any platinum coins or bars you buy secure? Storing them at home may sound simple at first. But check the terms of your home contents insurance policy. You will probably need to buy and install a good safe, meeting insurance-industry standards. You should probably also declare your bullion to your insurers. Otherwise you risk invalidating your policy if you don't mention these 'high value' items specifically.
You also need to check that the market-price of your platinum doesn't rise above your insurance policy's limit for high-value items. Because again, you risk voiding your policy if you breach its terms. So you will need to contact your insurers and raise that limit. That in turn will likely raise your insurance costs.
Coins and small bars bring another problem, little considered but with more costs again.
Before you buy, how will you sell?
If the price hasn't moved, investors in any financial asset should expect to get back a little less than they spent when they sell. That after all is how dealers and brokers hope to profit – charging you more to buy than they pay per ounce when you sell.
But in platinum coins and bars, shopping around is much harder when you want to exit your platinum investment, because you'll find fewer retailers willing to quote you a re-purchase price than in gold or silver.
Blame the lack of awareness amongst other investors. Lower levels of investor interest mean more risk for a retailer buying back stock. Platinum bars can also be harder to sell because people tend to prefer brand-new products when they buy. This means that secondhand items most often go back into the wholesale supply chain, melted down and recast as part of a large wholesale bar. Scrappage costs money which the dealer must recoup from his or her customers.
Where retailers do offer to buy back bars or coins you hold, the discount below 'spot' prices usually runs deeper than gold. Typical discounts start at 1% in Germany, 2% in the US and 3% or more in the UK. So on a round trip at flat prices, US investors in platinum face losing at least 7% of their money in retail bars or coins. In Europe this gap – known as the bid/ask spread – costs investors in Germany at least 12% and 14% in the UK. But their loss is widened again by VAT, a sales tax you must pay when you buy but which you cannot reclaim when you sell.
That is why, on a flat underlying price, physical platinum traded through retail dealers in Europe can cost you one-third of your money.
Such costs are, in our opinion, far too high to offer a serious investment. But there is another way to buy physical platinum – a way you can avoid high premiums, get full market value when you sell, and cut your costs to a fraction of the retail market.
A better way to buy platinum
Professional traders don't put up with wide dealing spreads, VAT sales tax, worries about storage, high insurance costs or a lack of buy-back quotes. The wholesale market is where the 'spot' price of platinum is created. BullionVault enables you to join it simply and quickly online. The cost savings are dramatic.
Using BullionVault to buy platinum, you'll benefit from the low costs and high security enjoyed by miners, refiners, banks, brokers, industrial users, jewellers, auto-makers and technology companies. Like them, you will buy and sell platinum held in large bars, all meeting the 'Good Delivery' standards of professional trade body the LPPM, and all stored in approved, specialist vaults.
The Good Delivery rules allow these bars to weigh from 1 to 6 kilograms (32 to 193 ounces). New bars today typically come around 5 kilos (155 ounces). That would cost far beyond the resources of most private investors. But on BullionVault, you can buy or sell as little as 1 gram at a time, holding your platinum as part of an undivided large bar. This way, you own your metal outright, but you benefit from the wholesale market's much tighter spreads between prices to buy and to sell.
Buying platinum in Good Delivery bars also makes it much simpler and cheaper to store and insure. Starting from 1 gram at a time, BullionVault enables you to share these benefits too, enjoying fully insured storage inside specialist vaults recognized by the professional market's biggest players.
Most crucially for UK, German and other European investors, your purchase is zero-rated for sales tax. VAT does not apply – taking your savings between buying and selling to at least 30% – unless and until you choose to take possession of your property, withdrawing it from the professional vault.
To learn more and get started today, simply register your email address to open an account here.