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Is Platinum A Good Investment?

04/13/11

Platinum is a chemical element with the chemical symbol Pt. Its name is derived from the Spanish term platina del Pinto, which is literally translated into "little silver of the Pinto River." Platinum is one of the rarest elements in the Earth's crust and has an average abundance of approximately 0.005 mg/kg. Platinum can be found as a byproduct in nickel and copper ores.

Platinum's industrial usages are in catalytic converters, electrodes, laboratory equipment, dentistry equipment, electrical contacts, platinum resistance thermometers, and jewelry. Currently, platinum's distribution is estimated at 54% for vehicle emissions control devices, 21% for jewelry, 6% in electronics, and 5% in the chemical industry as a catalyst. The remaining 14% went to various other minor applications, such as electrodes, anti-cancer drugs, oxygen sensors, spark plugs and turbine engines, and trading commodities.

Platinum is a scarce material and is highly valuable. However, very little Platinum is used as a precious metal trading commodity. Platinum has the ISO currency code of XPT. Coins, bars, and ingots are traded or collected. Much like silver and palladium, platinum is an industrial based trading precious commodity and is thus subject to extreme volatility. It lacks the stability we see in gold. Platinum is historically renown for performing well when the economy is on an upswing, yet plays poorly when the economy is going sideways or downwards.

As we see from this chart, platinum was mostly stable throughout 2006 and 2007, until it abruptly peaked early in 2008 during the high of the housing boom in the United States. Of course, history has it that housing bust happened the same year, which brought platinum down to $774 by November 2008. Amazingly, Platinum went from $2252 to $774 in a span of less than a year, a true testament to its dangerous levels of volatility.

Platinum is very closely linked to industrial demand, therefore it stands of gain tremendously during economic booms, and decline rapidly during economic recessions. This could lead an educated person to believe platinum as of right now makes a lousy investment and should prove to be lackluster for at least another decade. From a scientific stand point, platinum should make a lousy investment the next decade, but you must weight in the fact we live in strange times where governments are interconnected with each other and actively interfere with market forces. As we see from the same chart, platinum has made an impressionable recovery from it's $744 November 2008 bust and may soon approach it's 5 year historical high of $2252. This was mostly caused by the stimulus packages issued out by the Obama administration shortly after the financial crash of late 2008. Platinum often follows a lot of inertia in the market, it's often the last on a long list of precious metals to feel the consequences of our actions. I ascertain that the gains we currently see in platinum come from inertia in the stimulus packages introduced in 2009. Today may not be the best time to buy Platinum. Consider the stimulus packages have already dried up and it's only a matter of time until Platinum starts to see a decline. We're entering a double dip recession come 2012, which I foresee platinum getting a swift kick in the boot.

Does this mean you should never invest in platinum now or in the near future?

As I said earlier, we're entering unprecedented times in world history of governments connected together like tentacles of an octopus interfering with the markets with no end to this madness in sight that will plunge us into economic darkness. While the USA government may have ran out of "bailout" cards, keep in mind, many influential 1st tier countries remain that still have the option to play their stimulus cards. It stands to reason that if the subsequent collapse of the economy in 2008 and the stimulus package propped platinum back up; history could potentially repeat itself with countries like Canada, Russia, China, Germany, and France doing the same. Governments often have vested interest in inadvertently stimulating platinum upwards because of its high usages in both transportation and military. Two vital components the government feels it can't allow to collapse in order to retain relevancy and order. There may be unbelievable, once in a life time, buying opportunities for platinum come 2012. When platinum drops to the levels we saw in late 2008, and a major governmental power announces a stimulus package reminiscent to what we witnessed in the United States, that should be the day that you purchase as much platinum as possible.

It's inevitable we could most likely see platinum doing this dance for a second time. Make sure once your platinum is bought, you have a quick trigger finger to sell off the material just before any stimulus inertia runs out. This isn't a precious metal you should stack. Keep in mind, there will come a day all the world wide stimulus gimmicks will come to a close. From hence forth, barring a huge technological innovation or sudden change in culture experienced around the world, platinum can only ever go down. When that happens, platinum will most likely stay down for all generations that follow.

-Donovan D. Westhaver

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