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Is platinum better than gold? Choosing your metal


Is platinum more valuable than gold?

Platinum Bars Throughout history platinum has tended to be more expensive than gold and is generally considered to be the most valuable metal of all. Culturally, there is a hierarchy amongst the precious metals which roughly translates into their material value. At the top of this tree sits platinum, the shiny white metal which is recognised globally as an even higher symbol of quality and value than gold. Anyone who has walked into a jewellery shop will be aware of the difference in price between platinum and gold jewellery and in the music industry the title ‘platinum’ is given to an album that has been sold more than 1 million times.

Platinum has its reputation for a number of reasons- there is less platinum in the Earth’s crust and it is also more difficult to extract with only a few hundred tonnes of platinum being mined every year.

In terms of its abundance on the planet, then, platinum should always be more valuable as it is much rarer. However the price of metals doesn’t work like that and while, in theory, platinum should arguably be worth more than gold, this is not necessarily always the case.

Like any other asset, the value of precious metals is determined by supply and demand – forces which are not fixed and can rise and fall depending on the performance of the wider economy. Platinum differs from gold in that it has a much larger range of industrial uses, meaning its value fluctuates in a way that resembles an industrial metal much more closely than it does a precious one. This means that its value will typically show a closer correlation with the performance of the global economy.

A huge percentage of platinum’s industrial demand comes from the motor industry, which uses the metal in catalytic convertors to reduce emissions. The platinum price will therefore tend to be affected by the performance of car manufacturers. A good example that demonstrates this relationship is the scandal involving Volkswagen cheating on emissions tests towards the end of 2015. Demand for diesel engines was hit hard by this scandal. Demand for platinum therefore decreased, causing its value to fall sharply over the next few months. In the three months following the revelation, platinum lost around 15% of its value.

Click here for more information on investing in platinum.

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Gold vs Platinum

The gold - platinum ratio is the best way to observe the relationship between the two metals’ prices. When the ratio is above 1 it means that platinum is cheaper than gold. Looking at the historical gold: platinum ratio, we can see that throughout history platinum has tended to be worth more than gold, but that this is not always the case.

A savvy investor can use this ratio to find opportunities to profit from choosing to invest in one metal over another. The historic ratio chart will demonstrate that the platinum price has rarely fallen between that of gold and, given their relative availability in the world, it would be safe to assume that any fall in platinum below gold’s value should only be a temporary one. While this is by no means guaranteed, an investor thinking for the long term might decide that buying platinum while it is below gold is a huge opportunity.

Click here to view the Gold - Platinum Ratio.