I talked about investing in specific trackers when covering 5 thematic funds for the future. I now want to go a bit deeper into my top pick: investing in water.
Last Updated on September 22, 2020 by Mr. FightToFIRE
Recently, my wife and I were looking for our wedding rings.
While checking out different stores, I started thinking. Could white gold, platinum, and palladium be good gold alternative investments just as they are alternatives in wedding rings?
Investors see gold as a safe investment in times of economic turmoil. But what about its lesser-known but more expensive and rare (metal) sibling palladium (not to be mistaken with platinum)? And what about white gold? Should you invest in any of these?
I want to go over 4 gold investment alternatives. For each of them I will ask the question ‘should you invest?’ and why.
Should I Invest in Platinum?
In most industries investing in something rare is a good bet and platinum is very rare.
It’s only produced by two countries (South Africa and Russia), and in 2018 only 165 tonnes were produced compared to 3,332 tonnes of gold. On top of that, there are also only about 5 parts per billion by weight in Earth’s crust (Haynes, 2016, p. 14-17). Because of this rarity, platinum tends to be very pricey, which you can easily see by just looking at the price of platinum wedding rings.
Does this make platinum more valuable than gold?
As platinum is so rare you may be wondering what’s more expensive, gold or platinum, and assume its platinum.
However, the demand for gold is much higher. When things get rough and investors get worried, they rush towards gold. Following recent year(s) where investment in gold has dwindled, the coronavirus crisis has re-enforced its value as investors turn to it as the corona pandemic triggered a recession.
As the demand for platinum is much lower, this also makes it much cheaper. Platinum has various real-world applications, and its price is therefore driven by industry supply and demand. It is commonly used for:
- catalytic converters,
- electrical contacts,
- medical devices,
- turbine engines,
- computers, and
- the petroleum industry.
As a result, the current market price of gold, platinum, and Palladium:
Is platinum investment-worthy?
To sum up, platinum has potential as an alternative investment but due to its volatility should be approached with caution. Prices fall in times of recession, but in times of sustained economic growth, platinum does quite well (Valuewalk, 2020).
Should I Invest in Palladium?
At the beginning of 2020 palladium was reported to be the most expensive rare metal (Van der Walt & Pakiam, 2020), and currently (May 2020), it costs 63,140 EUR per kilogram. At the beginning of this calendar year, the price rose by more than 10 percent. This is the first time since 2002 that palladium has been more expensive than gold.
Like platinum, it is only produced in Russia and South Africa. But, the demand for palladium is much higher due to its use in the catalysts in environmentally friendly cars.
The reason for the rally in palladium, which has now lasted for four months is a huge shortage. This is due to the large demand for environment-friendly gas cars in which palladium is used for the catalysts. Since palladium and platinum are so similar, they both strongly react to supply and demand.
However, with this recent rise, has the palladium price risen too sharply? Just like the coronacrisis created a correction in the stock market Palladium might experience a correction as well.
Is Palladium a Good Investment?
Similarly to platinum, the palladium market is volatile. Currently, there is a huge shortage which may mean the price of palladium has risen too sharply and may be at risk of falling.
There are also attempts to increase supply. Some companies such as Umicore in Belgium recycle precious metals and create a new avenue to palladium. Although this doesn’t currently make a huge difference in demand, advances in the future could change that.
Overall, these gold alternatives haven’t proven to be a safer investment as the price of Gold is more stable. This may be because it is found in multiple areas across the globe and a supply issue in one country is unlikely to have a huge impact on prices worldwide. And while it has practical uses, the current market (like EVs) is more focused on the gold alternatives. In other words, if you wish to invest in rare metals, investing in gold is still the way to go.
White gold is the closest metal to gold and is also what we chose for our wedding rings.
There isn’t an exchange to invest white gold. So I decided to look at why that might be.
What is white gold?
White gold was originally developed as a substitute for platinum in jewellery (MacCormack and Bowers 1981). This is because it is made by mixing yellow gold with white metal, which bleaches the gold and create a platinum effect. So my title is a bit misleading. White gold isn’t a metal, but an alloy.
Despite extensive research (Henderson & Manchanda, 2005), there are no strict guidelines on the type composition or the ratio of gold to other metal, leading to an inconsistency in quality.
Also, it can be hard to spot low-quality blends as a layer of rhodium is sometimes added to the white gold, which improves appearance for around six months to a year.
High-quality white gold: Palladium and Platinum
There are high-quality white golds which contain palladium or platinum as the mix. Palladium has the advantage of creating a slightly redder, warmer appearance and is scratch-resistant (MacCormack and Bowers, 1981).
However, as palladium is so rare and expensive it’s relatively uncommon for it to be used in this way.
Some of you might be thinking ‘I thought platinum and white gold were the same thing?’ and you’re not completely wrong. In the 18th century, Henrik Theophil Scheffer coined the name ‘white gold’ for platinum (McDonald & Hunt, 1982, p. 35) but when we use the term now, we are generally referring to the gold mix I referred to earlier.
Now, you can buy platinum rings but these are a lot more expensive since they are usually 95 platinum and 5 copper for malleability.
- MacCormack, I. B., & Bowers, J. E. (1981). New white gold alloys. Gold Bulletin, 14(1), 19-24. https://doi.org/10.1007/bf03216555
- Henderson, S., & Manchanda, D. (2005). White Gold Alloys: Colour Measurement and Grading. Gold Bulletin, 38(2), 55-67. https://doi.org/10.1007/bf03215234
- Ross, R. (2016, August 1). Facts about platinum. livescience.com. https://www.livescience.com/39144-platinum.html
- McDonald, D., & Hunt, L. B. (1982). A history of platinum and its Allied metals. Johnson Matthey Plc. https://books.google.be/books?id=xriMAgAAQBAJ&lpg=PP1&pg=PP1#v=onepage&q&f=false
- Haynes, W. M. (2016). CRC handbook of chemistry and physics. CRC Press. https://books.google.be/books?id=q2qJId5TKOkC
- Van der Walt, E., & Pakiam, R. (2020, January 20). Why Palladium Is Suddenly a More Precious Metal: QuickTake. Bloomberg. https://www.bloomberg.com/news/articles/2020-01-20/why-palladium-is-suddenly-a-more-precious-metal-quicktake-k5n00l9z
- Valuewalk. (2020, February 11). Gold vs. Platinum: Which is a better investment? Yahoo Finance. https://finance.yahoo.com/news/gold-vs-platinum-better-investment-164119737.html