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Investing in precious metals is the best option during uncertain times…

04 july 2022

Gold, platinum, palladium and silver have been recognized as valuable metals and have been coveted for a long time. Today, in a savvy investor’s portfolio, precious metals find an important place simply because of the ease of monetizing them during needy times despite their price volatility.

However, price fluctuations are seen globally in all precious products including diamonds, gold, silver, palladium and platinum, leaving investors in a dilemma. To decide where to invest safely that gives good returns can be daunting for investors. When it comes to metals, gold and platinum are two of the most well-known and widely used precious metals. While both the metals have value in jewelry as well as in industrial uses, gold has traditionally been regarded as an important financial asset and a beautiful ornament, especially in Asian countries.

Platinum too is a valuable metal that is used in jewelry and industrial purposes and is a strong investment option. However, some differences in long-term stability and price volatility differ in gold and platinum. The price of platinum, till recently, was higher but presently gold cost more than platinum.

While platinum, like gold, is corrosion-resistant and has a lustrous sheen, it has a far smaller market than gold. Being of low supply as there is less of the metal, platinum futures are less actively traded than gold futures.

Platinum’s demand is mostly limited to automobile manufacturers and partly from jewelry and investment. And platinum’s price is volatile due to changes in the vehicle market, which is the reason why the platinum-to-gold ratio is so low compared to historical averages.

So, in terms of investing, gold is the topper compared to other precious metals, be it platinum or silver, having a preferred place in an investor’s portfolio. Studies indicate investors seeking to diversify their stock, bond, and cash portfolios have turned to precious metals. However, platinum has been regarded as worth and excellence, owing to its rarity and difficulty in mining. Global gold output is reported to be 3,332 tons in 2018, but platinum production was just 165 tons.

In terms of popularity, gold is by far the most popular investment among precious metals. Unlike gold, the price of silver swings between its perceived role as a store of value and its role as an industrial metal. Therefore, price fluctuations are more volatile in the silver market.

Gold is sought after because the metal can be bought in the form of jewelry, coins, bars, bullion, derivatives, futures contracts, and gold exchange-traded funds (ETFs), it is long-lasting and functions as an inflation hedge.

Also, investors go for gold because when there is an economic downturn or crisis, gold prices rise. Gold is held in official reserves by central banks due to its perceived worth being an alternative currency. Whereas, in comparison to gold, platinum has a far smaller supply as it is more challenging to mine than the yellow metal. While gold is mined in dozens of nations globally, usually all platinum is mined in only two: South Africa and Russia.

Any political or economic problems in these countries could have a major impact on platinum prices. In addition, platinum has a far broader spectrum of applications in the business and therefore its value is determined by supply and demand rather than investor opinion.

Globally, 3,463 tons of gold were mined in 2019. China, Australia, and Russia are the three countries that produce the most gold. Because of its perceived worth being an alternative currency, many governments and investors keep gold in large amounts. According to analysts, though gold and platinum tend to move in the same way over time, each precious metal is affected by different variables. The value of platinum is determined by supply and demand, but the value of gold is majorly influenced by market mood.

So, while silver trades almost in line with gold as an item to be hoarded, the supply/demand equally influences its price. Today, explosive demand for electrical appliances, medical products, and other industrial items that require silver inputs has upped the demand for silver From bearings to electrical connections, batteries, superconductor applications, and microcircuit markets use silver. But to what extent these developments will affect overall non-investment demand for silver is left to be seen.

During economic uncertainty, gold’s role being a haven drives up its price, while platinum prices fall due to dwindling demand. However, during periods of continuous economic expansion, the opposite is true. Platinum is sensitive to supply and demand variations in the current economic climate.

Gold occasionally demands a premium over platinum, while platinum sometimes commands a premium over gold. The gold-platinum ratio explains the connection between the two metals and provides insight into market emotion. If the percentage is higher than one, platinum is less expensive than gold, and vice versa.

Gold and platinum are both highly liquid assets. They are readily exchangeable for cash. They deal in both over-the-counter and physical marketplaces all across the globe.

Divergences in the gold-platinum ratio present investment possibilities (the price of gold divided by platinum). The ratio was less than one in the past, indicating that platinum was more expensive than gold.

However, the current balance is about 1.6, meaning that platinum is cheaper and more appealing. Although gold and platinum are both valuable metals, they are affected by different variables. Platinum becomes unreliable at this point. The price of gold fluctuates broadly on investor emotion rather than supply and demand. It has lower volatility than platinum.

Gold is traded on both the over-the-counter and physical markets globally. The difference between the price of platinum and the price of gold—can provide important insights into the current market mood. Divergences often lead to greater trading or investing opportunities.

Platinum is not a better investment than gold in reality. Gold is more stable and available to mine, and its price does not change like that of platinum. Gold is worth far more than platinum.

The demand for gold is more consistent than the demand for platinum. The industries where gold is most often used, like Jewelry, electrical, and medical are less influenced by economic concerns. Gold’s value often rises during economic downturns!

On the other hand, Platinum’s worth is directly related to manufacturing, especially the production of catalytic converters. Because demand is low when automobiles are produced slower due to a recession, platinum’s value decreases. Platinum’s price varies more than gold’s, and because demand fluctuates, price fluctuations are witnessed.

On the other hand, Gold has recently been valued more than platinum. To discern trends, the most well-informed investors look at the price discrepancies between the two metals. This price disparity is often expressed in form of a ratio. As a result, platinum is less expensive than gold if the ratio is more than one. On the other hand, Platinum is costlier than gold if the ratio is less than one.

Gold can be found almost anywhere on the earth, and governments global mine it. Because gold is located at the earth’s surface, mining it is simple. Platinum is only found in a few places, mainly in South Africa. According to some studies, there is more platinum in the soil than gold, but it is majorly more profound and harder to find.

Another study, on the other hand, contradicts this claim, claiming that platinum is 30 times rarer than gold. Platinum is far more difficult to mine than gold, but gold is considered as having more utility and practicality.

Many investors make investments in gold to complement traditional equities and bonds that can be disposed off in the case of an economic downturn. Whereas platinum cannot be used in the same way as it is more difficult to dispose of than gold.

As a serious investor, gold is probably your best bet if long-term investing and stability are important to you. Market studies show that gold is in high demand almost all of the time, and it is only increased during economic downturns. But, platinum, on the other hand, is often associated with a growing economy and may fluctuate dramatically in favor. However, if the economy is improving and the manufacturing and industrial sectors are extending, platinum may be a great short-term investment with higher returns than gold.

To invest in precious metals, it is wise to go for bullion and bullion coins of platinum, gold, or other precious metals in the form of coins. Collectable coins are available in gold and platinum and may have historical or aesthetic importance besides their metal value. If not, investment in gold or platinum bullion through equities, mutual funds, and exchange-traded funds (ETFs) are popular too, as they provide more liquidity and do not necessitate safe storage.

Analysts suggest investors should try to diversify into the commodities market, going for precious metals like platinum and gold is better as each has its own set of strengths, hazards, and market patterns. But, a proper study of the economic conditions is of utmost importance before making an investment choice.

According to analysts, investing in precious metals comes with some benefits over investing in stocks, such as being a hedge against inflation, having intrinsic value and no credit risk and so on. They suggest that buying the metal outright and holding the physical form or purchasing exchange-traded funds (ETFs) that have a significant exposure to precious metals or companies involved in the precious metals business is the best move when investing in precious metals.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished