When it comes to investing in precious metals, platinum and silver are both popular choices. However, platinum offers some key advantages over silver that make it a more valuable investment asset. Platinum has much lower annual production compared to silver, leading to constrained supply growth. At the same time, platinum demand is rising steadily due to increasing industrial and investment use. The supply-demand imbalance suggests platinum prices could outperform silver over the long run. This article will analyze the investment merits of platinum versus silver in depth.
Platinum has more constrained production growth relative to silver
On the supply side, platinum production is much smaller than silver production annually. In 2021, total platinum supply was only around 6.5 million ounces. Silver supply was over 1 billion ounces in the same year. This massive difference in production volume limits how much platinum supply can respond to increases in investment demand. Silver production, on the other hand, can ramp up more easily to meet rising demand. Looking ahead, platinum production is projected to increase moderately over the next few years. But supply growth will remain constrained relative to silver due to geological, technical, and cost factors involved in platinum mining. With supply growth more constrained, platinum prices are likely to rise more strongly than silver prices during periods of high investment demand.
Platinum demand growth outlook is more favorable compared to silver
On the demand side, platinum and silver have different demand drivers. For silver, industrial applications account for over half of total demand. Jewelry is the largest source of platinum demand. Going forward, platinum demand for industrial uses including autocatalysts and fuel cells is projected to increase steadily. At the same time, platinum investment demand has growth upside as more investors recognize platinum’s value relative to gold and silver. In contrast, silver has limited scope for significantly higher industrial demand growth. In addition, silver does not benefit from the same dynamics in jewelry and investment demand as platinum. Considering these demand trends, platinum appears better positioned than silver to see robust demand growth over the long term.
Platinum has historically been undervalued relative to silver
From a valuation perspective, platinum has traded at a discount to silver historically despite its rarity. Over the past 20 years, the platinum/silver ratio has averaged around 1. This means it took around 1 ounce of platinum to buy 1 ounce of silver. By comparison, the gold/silver ratio averaged around 60 over the same period. Given platinum’s similarities to gold as a precious metal, its valuation versus silver appears anomalously low. If the platinum/silver ratio mean-reverts toward the higher historical average for the gold/silver ratio, it would require a significant rise in platinum prices relative to silver. This provides a compelling value case for platinum over silver in a portfolio context.
Platinum offers superior investment value compared to silver based on favorable supply-demand dynamics and attractive relative valuation. Constrained platinum production growth along with steady demand increases, especially from industrial applications, will likely drive platinum prices higher over the long run, potentially outperforming silver. Platinum also appears significantly undervalued historically relative to silver. For investors, allocating a portion of precious metals exposure to platinum could provide improved portfolio diversification and return potential.