Precious metals have seen a lot of price action over the last few years, with little sign of slowing down.
This year kicked off with massive moves in gold, with prices surging to a 6-month high.
One of the reasons why precious metals prices have been on the move is the recent upheaval in global economic conditions. In times of global uncertainty, precious metals like gold and platinum tend to perform well and gain value.
The other is demand. Precious metals aren’t just intrinsic stores of value. They also have specific industrial applications that influence their price.
Are you wondering whether to invest in gold or platinum? These two precious metals are almost indistinguishable from a jewelry standpoint, but they have strong differences as investments.
If you want to invest in these two sister metals, it can pay (literally) to understand their differences, what influences their values, and why they can complement each other in a portfolio.
Keep reading for more info on gold and platinum, so you can make an informed investment decision.
Benefits of Investing in Gold and Platinum
Although they are very different markets, gold and platinum share some common traits as investments. They are both precious metals that hold tangible value, and both have industrial uses.
Here are some of the overarching benefits of investing in gold and platinum.
Protect Your Wealth From the Insidious Effects of Inflation
One of the primary benefits of investing in precious metals as a whole is their ability to act as a hedge against inflation.
Gold is the more famous of the two metals for its use as an inflation hedge.
Gold Is a Time-Tested Inflation Hedge
Simply put, inflation is the devaluation of money. Inflation is caused by various factors, but one of the biggest influences is money supply. The more money is in circulation, the less each unit is worth.
Here in the US, our treasury is notorious for its penchant for increasing the money supply.
Thanks to lockdown measures and stay-at-home orders, the earlier stages of the pandemic saw an unprecedented increase in money supply. Not surprisingly, last year the US saw record levels of inflation, reaching a 40-year high.
Since then, inflation has dropped, but this doesn’t mean the danger is over. Sudden increases in inflation are alarming and highly noticeable. If inflation is soaring, you won’t just see news headlines about it, you’ll also notice it at the grocery store.
But the real wealth killer is slow, steady inflation that eats away at your capital over time. Even low or normal inflation rates can decimate the buying power of retirement savings.
For instance, if you take the long-term norm inflation rate of 3% and compound it over 25 years, what costs you $50 today will cost $100. In other words, if your investments and retirement savings aren’t growing rapidly enough to keep up with inflation, they will have lost half their value.
This is one reason why some people turn to precious metals investments.
Gold has proven itself to be a highly effective inflation hedge over the long term. One reason for this is that gold’s price is inversely tied to the dollar. When the dollar’s value goes down, this strengthens the value of gold.
Unlike the US dollar, there are also supply constraints on gold. Yes, new gold is mined every day, but supplies aren’t endless and they come with mining costs.
Platinum Is Gaining Momentum as an Inflation Hedge
Platinum isn’t a classic inflation hedge like gold, but over recent years it has shown a strong tendency to hold its own against currency devaluation. Many investors are now starting to view platinum as a potential inflation hedge.
Reduce Risk Through Diversification
Another of the benefits of gold and platinum is that both these assets can help reduce portfolio risk through diversification.
Many people tend to primarily hold stocks and bonds, either directly through their investment accounts or via financial vehicles such as mutual funds, pension funds, and IRA accounts.
While stocks and bonds have their place in any portfolio, investing only in these assets can leave your holdings open to market swings and economic uncertainty.
Real estate can be a good way to diversify a stock-heavy portfolio. However, real estate is notoriously illiquid and subject to local market conditions.
Precious metals like gold and platinum offer a more liquid way for investors to diversify. Price movements are also less impacted by localized factors such as crime in an area, lack of housing demand, rezoning laws, etc.
Own a Tangible Asset
Besides offering diversification opportunities, gold and platinum also give investors a way to invest in tangible assets. If you’re unfamiliar with the term, tangible assets are assets that hold inherent value.
For instance, company stocks are only valuable as long as the company remains afloat. If the company goes bankrupt, its share value can drop to zero almost overnight.
This is just about impossible when it comes to precious metals like gold and platinum. Both of these metals are intrinsic stores of value, and both have industrial uses.
Although tangible assets are a staple portfolio ingredient for the ultra-wealthy, only about 10% of Americans own gold according to reports. Diversifying into precious metals like gold and platinum is one of the ways you can safeguard your wealth from catastrophe.
Buy Into a Safe Haven Asset
Not only are gold and platinum tangible assets, but they are also safe havens. Safe havens are asset classes that tend to perform well during times of economic or political uncertainty.
In other words, they are the assets investors, traders, and fund managers run to when there’s upheaval in the markets. A recent example of this was the market crash of 2020.
As stocks plummeted to record-breaking lows, the gold price surged thanks to the asset’s safe haven status.
Safe haven assets like gold and platinum aren’t just good places to keep your money safe. They can also be leveraged to increase your capital.
For example, investors who sold their stock market positions during the first portion of February 2020 and shifted into gold, could have kept their capital safe and realized significant gains. Once the stock markets bottomed out, anyone who sold their gold positions and went back into the S&P 500 could have recognized significant overall gains.
Capitalize on Industrial Uses
Gold and platinum also hold value as long-term investments thanks to their industrial uses. Both of these precious metals have numerous industrial applications.
Platinum takes the cake on the industrial front, being a vital component in catalytic converters. Being highly conductive, it’s also used in electrical contacts, as well as pacemakers, magnets, solar cells, and certain pharmaceutical drugs.
Although a large portion of gold is used in the jewelry industry, it is also an efficient conductor. Because of this, one of its main industrial uses is electronics. It’s also used in dentistry, medicine, and aerospace engineering.
The industrial demand for gold and platinum can fluctuate over time in response to innovation and manufacturing developments. But overall, it can act as a strong price driver.
Relatively Good Liquidity
As we mentioned earlier, precious metals like gold and platinum offer a relatively good level of liquidity. If you buy precious metals in the form of bullion, it will be less liquid than buying into things like ETFs and precious metals-based mutual funds.
However, it is still a lot more liquid than other tangible assets such as real estate and art.
Also, both gold and platinum have immense market caps. This means that you can sell your holdings at any time. You don’t have to wait around for the right buyer.
Gold vs Platinum as Investments
Now that we’ve covered the overall benefits of investing long-term in gold and platinum, let’s take a look at how these two precious metals compare.
As we mentioned above, gold and platinum perform differently, so it’s important to understand the nature of the two markets before you invest.
Some investors may want to prioritize stability and long-term investing. In that case, gold is likely the better option. Gold has a longstanding history of reliable demand which often spikes during economic downturns. On the other hand, platinum usually performs better during times of economic growth
Most precious metals experience some level of volatility, but gold is usually far less volatile than platinum. Why?
Firstly, gold has a large market cap. This helps to stabilize the price.
Additionally, gold has been traditionally used as a store of value. Even though it has industrial uses, many investors, and even countries, hold it purely to safeguard wealth.
Platinum, on the other hand, experiences a fair amount of volatility. This is mostly due to supply and demand fluctuations. Because platinum’s primary use is for industrial purposes, shifts in manufacturing demand can have a big impact on price.
Additionally, the supply of platinum is also vulnerable to change. One of the reasons for this is that platinum is only mined in a handful of places.
At the moment, South Africa produces 73% of all mined platinum. Chronic, ongoing electricity shortages in the region are likely to impact production into the future, resulting in a predicted supply deficit.
Russia, which produces a further 8% of mined platinum, is also unable to guarantee its targets for this year.
Volatility isn’t a bad thing, as it can trigger price increases. But, it’s important to hedge your portfolio by including assets with varying levels of volatility.
Because gold and platinum have different levels of volatility, they complement each other well. Platinum gives more room for medium-term gains, while gold can safeguard your overall holdings.
As you may have guessed, the industrial demand for platinum is higher than it is for gold. Although platinum is used in the jewelry industry, where it really “shines” is in electronic applications.
Industrial demand for platinum is a big price driver. It also helps to offset the safe haven nature of gold.
When markets are down and economic activity is at an all-time low, precious metals that are used primarily for industrial applications tend to drop in price. At the same time, time-honored safe haven assets like gold tend to spike in value.
If you have both of these precious metals in your portfolio, you can safeguard your wealth no matter the circumstances.
Did You Know You Can Invest in Both Gold and Platinum via a Precious Metals IRA?
Investing in gold and platinum is a comprehensive way to diversify, hedge against inflation, and safeguard your wealth. But diversifying into these asset classes can come with complexities.
If you opt for precious metals-based ETFs and mutual funds, you give up control over your assets. Just like stocks, if something goes awry with the balance sheets of these financial products, your capital can dwindle overnight.
If you buy gold and hold it privately, you’re faced with disadvantageous tax implications and storage responsibilities.
Fortunately, there’s an easy way you can diversify your wealth. Enter a gold IRA. A gold IRA or precious metals IRA offers all of the tax advantages and security of a regular IRA, but with more control, more diversity, and more resilience to economic uncertainty.
What’s more, you don’t have to start a gold IRA from scratch.
Instead, you can easily convert your existing IRA to a gold IRA through a simple rollover.
Opening or converting an IRA to a gold self-directed IRA allows you to invest in the top precious metals. Including gold, platinum, silver, and palladium, without having to physically house the bullion, or give up your IRA-related tax benefits.
If you choose an industry-leading gold IRA provider such as Allegiance Gold, you can rest assured knowing your holdings are kept in secure custodian vaults.
Are You Planning to Invest in Gold and Platinum?
Gold and platinum are both tangible assets with intrinsic value. Because they differ in terms of volatility and application, they can complement each other and help ensure your precious metals portfolio is well-rounded and resilient.
If you’re planning to invest in gold and platinum, one of the most secure, tax-advantageous, and streamlined ways is through a precious metals IRA.
If you want to open a gold IRA or convert an existing IRA to gold through a rollover, we are the people to speak to.
Allegiance Gold specializes in administering gold IRA accounts. We partner with trusted precious metals custodians and offer a seamless application and rollover process.
Browse our learning center to find out more, contact us if you have any questions, or fill out our easy online form to apply for a custom precious metals IRA.