One precious metal that is just as rare to find in the earth’s crust as gold bullion is platinum. Platinum investing is more expensive than mining gold bullion, because platinum is found in fewer concentrated areas in the earth’s crust. Unlike gold bullion, platinum investing has industrial applications, which makes it a more attractive investment, as the demand side for platinum investing continues to grow, especially in the green energy space. Platinum is almost impossible to corrode, even at very high temperatures, which is why it is still considered a precious metal. Because of this characteristic, this precious metal is a component of catalytic converters, solar panels, fiber optic cables and infra-red detectors. In medicine, platinum investing continues to grow because of platinum’s key attribute of preventing human cells from dividing. This has created cancer-related drugs that incorporate platinum and medical instruments to treat cardiac and other diseases. The metal is also in great demand in the jewelry market, especially in India. Investors need to pay attention to the fact that although there was a surplus of almost a million ounces of platinum in 2011; it looks like platinum could be headed for a deficit in 2012, as demand outstrips supply.
Like many commodities, platinum investing is based on supply and demand dynamics. While the demand portion of the equation is based primarily on world economic fundamentals, the supply side can have shocks to the system that can impact prices and affect one’s platinum investing strategy.
Last week saw massive violence break out in South Africa, at the location of the third largest platinum miner Lonmin Plc (LSE/LMI.L). A strike by miners erupted in bloodshed, with a total of 44 people killed, most of who were gunned down by police after strikers attacked the security forces with machetes. Platinum investing through mining stocks can be risky for many reasons; labor strife in unstable countries is chief among them.
There appears to be some resolution close at hand, as the company has backed off its disciplinary actions, announcing that returning workers won’t be fired. As of Monday, approximately 27% of the approximately 28,000-person workforce was back in action.
Investors interested in platinum investing should note that prices have spiked because of this violent outburst. Another important point to note is that a small concentration of mining stocks has a large impact when it comes to platinum investing. Actions or issues at these mining stocks can reverberate throughout the industry, causing ripples across the pond and hitting many firms involved in platinum investing.
South Africa extracts approximately 75% of the world’s platinum. Mining stocks in that region are susceptible to labor issues and an incident such as this current one with Lonmin’s mine has the potential to spread to neighboring operations. If that were to occur, platinum prices would continue rising substantially.
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