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A Guide to Platinum Prices

Recent Changes in Platinum Price Fixing

The platinum market has been subject to some significant changes in 2015. The price of platinum was historically determined each day by the London Platinum and Palladium Market Fixing Limited. As of December 2014, the four fixing members of the London Platinum and Palladium Market Fixing Limited were BASF Metals, Goldman Sachs, HSBC and Standard Bank. However, as of 2015, that responsibility has been transferred to the London Metal Exchange.

While in the control of London Platinum and Palladium Fixing Limited, the process took place through two daily conference calls, but the process is now electronically based. Although the old system provided stable prices for over a century, many people felt that the switch to a computer-based system would offer protection from the possibility of price-rigging. While there was no substantiated evidence of price-rigging, the change to an electronic based system is thought to reduce or eliminate such possibilities. The official London Metal Exchange price provides a global benchmark that determines platinum pricing around the world.

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Factors That Influence the Platinum Price

Several factors influence platinum prices. Supply and demand, the futures market and national economies all play a role in how this rare and precious metal is priced. As with any commodity, high supply and low demand lowers prices. Low supply and high demand cause them to increase. Demand is greatly affected by industrial use for platinum. Its industrial uses include being used in vehicle emissions control devices, jewellery, electrodes, spark plugs, turbine engines, and it is even a component in certain cancer-fighting drugs. High industrial demand can drive the prices up, but a decrease in the demand can cause them to fall.

Because platinum is a rare metal, those who purchase it when the market is weak will often be able to sell at a high profit when the market is stronger. Its limited supply guarantees that the market is not likely to be flooded with huge supplies, except when the excess supply is caused by low demand. However, platinum's prices are subject to greater fluctuations than other metals like gold and silver, which have historically retained their value well.

These fluctuations are one of the reasons investors choose this bullion: It has a great deal of profit potential. With that potential, of course, comes the risk of loss. For this reason, most investors use platinum bullion for speculation. It is not a good choice for people who want to hedge or shield their other investments against the potential of loss.

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How Platinum Prices are Determined

Currently, platinum prices are determined by the London Metal Exchange. This group provides an electronic pricing solution for price fixing. The transfer of responsibility to this group introduced some significant changes in how platinum prices are determined.

The London Metal Exchange was founded in 1877 and is the leader in industrial metal trading. The group traces its origins to the opening of the Royal Exchange in London in 1571.

It uses a program called LME Select for its price fixing. The platform was launched in 2001. It is a FIX-based trading platform that was developed by a company in Sweden called Cinnober.

Shortly after the practice of gold fixing ended in 2014, London Platinum and Palladium Market Fixing Limited announced that the London Metal Exchange was selected to the the new administrator of the London Platinum and Palladium Market Fixing's price fixing operations. Responsibility for platinum and palladium price fixing was formally transferred on January 1,2015 to the Hong Kong-owned London Market Exchange. The LME is now responsible for the twice-daily benchmark platinum pricing, and it does so using an electronic system.

The London Metals Exchange was already a self-proclaimed world centre in industrial metals and price-risk management, so adding precious metals to its offerings positioned this group as the authority for platinum and palladium price fixing worldwide.

Before August of 2014, platinum price fixing was handled entirely by London Platinum and Palladium Market Fixing Limited. Its participants were international banks that were required to also be members of the London Bullion Market Association in order to qualify for inclusion in the group.

The London Platinum and Palladium Market Fixing Limited group was an offshoot the the London Gold Fixing Limited Group, a group that had been assessing the fair market price of gold daily since 1919. Different banks had membership in this group over the years. Every morning, these banks determined how much gold they would buy or sell at a particular price point. They handled these transactions on a large scale.

During these calls, platinum and palladium were offered at various mock prices to determine a price point at which the market would balance. When the number of sellers and buyers were nearly equal, the price would be set at that rate for the day. The group funded its operations by charging a fee for each ounce of precious metals purchased.

Now that the process is computer-based, there are no longer conference calls involved in determining the price. Instead,a computer program uses an algorithm that determines the fair market value by making calculations that account for all the various market factors that are used to determine fair pricing.

Why Platinum Prices Fluctuate

Platinum prices fluctuate because the factors that determine its value are also subject to ever-changing market forces. The value of currency fluctuates, causing the price of palladium to vary across different national markets based on a particular national market's currency strength. There are also variations in both supply and demand at any given time. Because platinum is not as historically stable an investment as gold, its prices can vary wildly in response to increases and decreases in industrial demand. Because precious metals are not valued as currency, even when in the form of numismatic coins, the market treats them as goods and commodities. This helps to stabilise the prices to some degree, offsetting against long-term inflation.

The Role of Platinum Spot Pricing

Spot prices relate to the price of a precious metal at a given location and time. This is the price used in making day-to-day transactions relating to platinum. Although prices are in constant flux, the spot price locks in the time and place to determine a fair market price for a given moment based on the current value of platinum and the futures market. Because pricing fixing occurs twice daily, the spot price is subject to variations even during a single given day.

The spot price is also accounted for when determining futures market pricing. The London Metal Exchange handles most transactions involving the futures market, so their involvement in spot pricing streamlines the process to some degree.

Spot pricing is also used to determine the value of numismatic coins, but this normally only provides the foundation for base pricing. Other factors determine the end-cost of collectible coins, so spot pricing is not a good indicator of the actual value of a particular coin.


Platinum Prices and Numismatics

Collectible coins are not typically priced using spot pricing, although the spot price is a factor in determining the base price of numismatics. Collectors factor in others qualities that include rarity, age, and the condition of a coin to determine the collectible value of a particular coin at any given time. These coins are almost always worth at least the spot price of platinum, but they are sometimes worth a great deal more. These types of coins are generally of more interest to people who are interested in the collectible and historical value of platinum. People who are primarily interested in investing tend to choose bullion. People who invest in collectible coins will usually have to be more patient in their search for a buyer, but they can sometimes gain a great deal of profit from selling rare numismatic coins when the right buyer is located.

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Platinum Prices: Bullion

Investors who want to buy platinum as a tool solely for investment purposes tend to buy bullion, while collectors are usually more drawn to numismatic coins. Bullion always lists certain technical information that includes its standardised weight and its actual platinum percentage. In the form of bullion, the value of this commodity is easy to assess on the global market. Coins, other the other hand, have more value to collectors. The process for selling coins at top prices often involves a longer search for a buyer because the market operates differently than the bullion market, where bars can be traded instantly. While spot pricing does play a role in pricing numismatics, there are other factors involved in that type of deal: age, condition, and rarity are just a few considerations. However, the right collector will often buy a numismatic coin at prices that go far beyond the metal's spot value, and there are lots of collectors who like to invest in platinum coins.


How Currency Fluctuations Affect the Price of Platinum

The price of platinum rises and falls within a national economy due to fluctuations in the value of local currency. A single dollar has more purchasing power when the dollar is strong, while that same dollar has less purchasing power when the dollar is weak. This greatly affects the prices of commodities like platinum within a particular economy because people often buy this type of material in large quantities. While it is best to invest in platinum while its global prices are low, it is also helpful to factor in one's own currency values to determine the best time for such an investment. Ideally, platinum investments are made when the dollar is strong, but when prices are low. Sellers typically want to sell their holdings when the prices are high. Accurately determining the commodity value in relationship to currency strength can allow platinum investors to get the most return on their investment.

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Various Market Factors that Affect Platinum Prices

Several different market factors influence platinum prices. Fluctuations in currency values can affect the prices in a particular market. Changes in supply and demand can cause prices to vary in a global market. When a particular currency is strong, it has more purchasing power for goods and commodities. On the other hand, when that currency is weak, is can purchase fewer items with the same amount of money. For this reason, a national economy affects prices of platinum in that country.

Global market factors such as supply and demand also cause the prices of platinum to shift. Futures markets also play a role in the price volatility. When there is a large supply, but fewer buyers, the prices fall. This is true with any commodity, but it is especially influential on platinum pricing. High industrial demand causes platinum prices to be higher. However, when that demand decreases, the prices can drop drastically.



How Futures Markets Affect Platinum Prices

Futures markets are always involve speculation. When determining futures pricing, common market forces affect those predictions. For example, during economically unstable times, people often buy gold to protect their wealth. The price of precious metals are greatly affected by the global economy.

A bleak economy generally signals a good time to buy platinum. The same is true for gold, but for a different reason. During weaker economic times, industries that use platinum often substitute platinum for cheaper metals. As industrial demand declines, the prices of platinum fall. People who are interested in buying platinum find the prices vary favourable during these times. However, speculative demand can also drive the futures prices upward, so strategic investors will buy into weak futures markets, not strong ones. Sellers, on the other hand, want to get rid of their holdings when the prices are high. For that reason, high prices often mean sellers can flood the market, causing prices to drop. This is part of the reason why platinum is a highly speculative market, especially for those investing in futures. When investing in futures, three factors are fixed: quantities, quality of the metal and time and place of order deliveries. The prices, however, are variable.

Why Platinum has Hight Profit and Loss Potential

Platinum is a more volatile investment than gold, which means there is more potential for both profit and loss. The prices of platinum are subject to extreme market fluctuations, while gold prices tend to be more stable. In 2008, for example, the prices of platinum dropped by two-thirds of its value, whereas gold lost only one-third of its value. However, this was during a time of extreme economic uncertainty.

During more stable economic times, platinum usually costs about two times more than gold. The reason for this kind of varying in price is because industrial demand for platinum is a major determinant for market pricing. When industrial demand for this metal decreases, prices drop.

Because of the market instability associated with this rare metal, there is actually more profit potential with platinum than gold. If an investor buys low during times of uncertainty and waits for the market forces to bring the prices back up, there is often a great deal of profit potential. Sellers who are not willing to wait for the high prices to return, however, may find themselves selling at a loss. Because there is more risk with platinum, it is often a good investment for speculation.

A Brief History of Platinum

Platinum lacks the same extensive history as gold and silver. It wasn't officially discovered until 1748, although there had been written records of the material dating back to the 16th century. Its extreme rarity caused this precious metal to become associated with wealth and prestige.

The rare metal is most often found while mining for nickel and copper. Platinum is actually more abundant on the moon and in meteorites than it is on Earth, and its rarity is what makes it so expensive.

Like gold, it is non-corrosive. It is not subject to tarnishing or rust. Because its origins are in space, platinum is not a renewable resource.

Platinum is a newer precious metal that was not discovered until the mid-18th century. Its many industrial uses continues to fuel a tendency toward high demand, although that is not always the case. Investors who are looking for a way to offset losses should look to a precious metal like gold for the stability it offers to shield against capital losses. However, those who are more interested in a speculative investment that has a potential for exceedingly high profits will appreciate the extreme volatility of the platinum market. While there is a risk of substantial loss if one buys this metal at too high a cost, there is also a potential for huge gains if platinum is bought when the market is weak and sold when it is strong. Investors who can afford to be patient in order to sell strategically often do well with a platinum investment.