- Personal Finance»
- Investing in Stocks, Bonds, Real Estate, More
The Price of Platinum U.S. Eagle Coins and What the Current Use of Platinum Is: Why One Ounce is so Expensive
Huge Specimen of Platinum
A Platinum Nugget from Russia
For many years, platinum has sold at a price higher than gold. There has been a ratio between the price of platinum and gold that has held for a long time. Usually platinum sells for 200% the price of gold. Recently that ratio has decreased; sometimes the price of platinum has actually dipped below the price of gold, as in the 90's.
It is harder to find platinum when compared to gold. Not only is it harder to locate, the total number of current ore bodies is below that of gold. ore bodies. Industrial metals are stock-piled to guarantee sufficient supplies for industrial purposes and also coinage. The current inventory of platinum is less than gold (what is on hand and available for use), but every year 20 times the current inventory in platinum is produced. Meanwhile, gold gets stock-piled for central banks (for its confidence value) and for individuals to purchase. Central banks that possess a lot of gold seem to have relatively stronger currencies even though those currencies (in just about all cases) aren't exchangeable for that gold. A more direct way of looking at it is that the annual gold production is 1.2% of current inventory, while platinum annual production is 2000% of the current inventory. As far as its utility, gold is used for fewer things. In contrast, platinum has many uses. Here are some examples:
1. for coatings on missile nose cones
2. for jet engine fuel nozzles
3. for containers which can withstand higher temperatures than the substances they hold
4. for car catalytic converters
5. for jewelry
6. for car spark plugs
7. for cancer treatments
8. for disk drive coatings
9. for fiber optic cables
There are many more examples. One third of the platinum market is consumed by the automobile manufacturing industry.
South Africa dominates the world as supplier of platinum. It alone produces 80% of annual platinum supply. At 11%, Russia is second in platinum production. The rest of the supply which comes as a result of palladium mining comes from North America. In order to get one ounce of platinum, one must process ten tons of ore.
Gold and palladium are often found along with platinum so it can be found as a result of mining for gold and/or palladium. Platinum can, also, be found in 50%-75% purity in grains, as nuggets, or as platinum dust.
Platinum is a popular precious metal for a couple of reasons. The primary reason, I believe, is its rarity. A secondary reason is its physical beauty. It comes with a silvery-white luster. Along with this luster is a very faint grey tone. Another reason for its popularity is the special properties it holds. One could argue that this reason should take the place of my number one or number two. For all of these reasons platinum has been chosen for coinage.
One hundred dollar American Eagle 1 oz platinum proof coins are stamped in the United States as well as a number of other countries. The Platinum Eagle was first minted in 1997. As of this date, it is selling for $300 more that the 1 oz Gold Eagle (spot price gold- $1413.10 at the close today, spot price platinum - $1754 at the close today). By far the Eagle is produced in greater numbers than any other platinum coin, but other government minted platinum coins are also easily available for purchase. The Canadian Platinum Maple Leafs, Australian Platinum Koalas, and the Isle of Man Platinum Noble Coins can be purchased. One ounce bullion bars are available from private mints and dealers. The American Platinum Eagle set is comprised of half ounce, quarter ounce, and one tenth ounce coins. All of these are included in the Australian Platinum set, and also a 1/20 ounce coin. Now for the eye-opener. In addition, 1 kilogram (2.2 pounds) and 10 ounce coins are also minted in Australia! These government mints also stamp out gold and silver coins. A number of countries are also minting palladium coins.
Using platinum as an investment vehicle requires some careful thinking. Dealers need to make a profit selling these coins. Our U.S. mint sells platinum Eagles marked up 8% over the spot price of the metal. The spot price is the present delivery price of a particular commodity traded on the spot market. The spot market (or cash market) is a public market, in which financial instruments or commodities are traded for immediate delivery (from Wikipedia). Another 2 % premium is added to the price coin dealers pay their wholesalers for the coins. As the coins change hands, the original price from the mint rises significantly. I found a 1 ounce American Platinum Eagle for $1930 today online. The best price I could find a dealer online willing to pay for a one ounce American Platinum Eagle was $1754. That is a $146 difference from buy to sell on the same day! One must ruminate about the potential time for a coin to increase in value by $146, and ruminate carefully.
Someone planning to purchase platinum American Eagles to pay for a child's college education needs to know about precious metal value patterns. One relevant pattern is that of the United States economy. When the economy is doing poorly, precious metal prices rise. These prices can stay elevated for a long time. But when the U.S. economy soars, precious metal prices typically DROP, and can remain low for a long time! If a parent (investor) can wait for 10 years for prices to begin rising again, it might be a good sound investment. If an individual anticipates a hyper-inflation, it might NOW be a good investment. But, on the other hand, in the event that these possibilities do not come to fruition, an individual could lose a lot of money in a hurry!
Here is one more argument based on the future outlook for platinum prices. Some experts claim that platinum is different. They say demand for platinum is so tight (industry needs so much) that gold and silver prices might fall, but not platinum prices. The wide use of platinum in manufacturing mentioned above, it is said, will keep the price elevated, no matter what the direction of the economy.
I only listed 9 reasons platinum is highly valued. During World War II, the U.S. banned the sale of platinum. Used widely in war machinery (aircraft, ships, etc.), platinum was vital to the war effort. Prior to this time, engagement rings were frequently made out of platinum. When banned, gold became the precious metal of choice for engagement rings. It is speculated that platinum's recent popularity has come about due to its lustrous beauty and its star appeal. Following a common trend, Hollywood stars set the tone for engagement rings. Not unusual for entertainment TV shows is a movie star flashing a brilliant platinum engagement ring. The durability of platinum is greater than gold (it is extraordinarily hard and strong). It is so hard that it will show no wear over a lifetime, whereas gold scratches fairly easily, and the more so the higher the purity. The fact that platinum is more expensive than gold only adds to its mystique. Of course, platinum is used in many types of jewelry.
A person should read a lot about the platinum market and discuss precious metal investment with an authority before buying platinum coins or jewelry as an investment. Going into a volatile market like the precious metals market without proper knowledge and confidence is a recipe for disaster. Market swings in the precious metals ARE SEVERE!
The Insides of a Catalytic Converter
If you were going to buy a precious metal for investment, what would it be?
© 2011 John R Wilsdon