Many investors and collectors perceive some real, tangible value in owning and possessing precious metals versus securities that are seen as merely tracking or being based upon the precious metal in question.
There may certainly be something that may be said about this preference, and especially if you have platinum or other precious metal in your possession, there is added security, and especially more perceived security than just speculating on the platinum market or owning shares in a pool of platinum, or even with buying unallocated platinum, none of which is either in your possession or is attached to you directly.
Platinum is also perceived to be a beautiful metal, and its coins and bars also are intricately crafted and fashioned, adding to the esthetic appeal of the investment ownership. Platinum owners may proudly display their platinum coins, or even bars, or may take them out to show loved ones their collection.
None of this is possible with securities, and merely telling someone or even yourself that you hold a position in platinum, control various amounts, or are invested in positions that move with the price of platinum just doesn’t seem that impressive.
It is little wonder then why ownership of platinum coins and bars remains popular, in spite of the apparent archaic nature of the practice in the context of today’s very efficient financial markets. While we may be able to very closely approximate physical platinum ownership with something like a platinum ETF, where we essentially hold shares in a pool of platinum holdings, there are many who insist on the real thing, in spite of this means of ownership being far less efficient and significantly more costly per dollar invested.
The Platinum Buying and Selling Process
If you are out to buy platinum bars and coins, while the order can and very often is placed on a computer, your computer will not be sufficient to complete, maintain, and close out these trades, obviously.
Since you are ordering real platinum, and are looking to take possession of it, the physical platinum must either be picked up at the dealer’s location, or most often, shipped to you.
Securities are bought and sold through brokers as well, but these transactions these days take place electronically, rather than involving something shipped to you for you to take possession of prior to your ownership beginning. You also don’t have to deliver the securities to the broker physically to close your position either, and these processes these days take place on computers essentially, in the digital realm so to speak.
So, if you buy shares of a platinum exchange traded fund or ETF, your ownership of the shares begin immediately after your order is filled, which occurs in seconds. When you are looking to sell your shares, you place them up for sale on the exchange and the order gets quickly filled as well and your position is closed.
While this happens as well when you purchase platinum bars and coins from a dealer, where you do own the physical platinum, the legal title to the amount you bought, the order needs to be filled for the actual platinum you bought.to be allocated to you from the dealer’s bulk supply.
Once it is allocated, then it needs to be picked up or shipped to you, and most platinum bought these days from dealers is shipped. This of course takes time, and it isn’t until you receive the shipment that you can direct the investment, in other words place an order to close the position by selling it.
To do so, you have to send the platinum back to a dealer, who later will take possession of it and submit a payment to you to transfer the legal title of the platinum to them.
The turnaround time for all this is significant, and during this time, on the buy and sell end of the transaction, you may or may not care about any of this, if your intention for instance is to hold the platinum for a fairly long period of time. You may not care that you cannot liquidate your position immediately in this case, and the amount of time it takes to do so may not be that meaningful in comparison to the overall length of the holding.
Since people do not want to ship off their platinum without knowing what price they will receive, dealers will offer a price to sellers prior to the order being shipped to them, and this is a real advantage to sellers since they can essentially trade the platinum, both on the buy and the sell side, as if the transaction were occurring electronically.
So, the price that is paid here in terms of the timeliness isn’t so much the ability to execute the transaction at a given price, it is that the buyer of the platinum is committed to it for a given period of time, and therefore this method of investing in platinum only really suits those who are looking to maintain ownership for longer periods, of several years typically, and would not suit those who are just looking to speculate on it shorter term.
There are many investors who seek just that, to hold bars and coins for a period of years, and they also desire to be in possession of the platinum for various reasons, instead of just having it held in a pool or speculating on it through buying and selling securities. If the added value of the bars and coins being held physically is worth it to the investor, this can make sense, but we want to ensure that the added costs of this are going to provide adequate additional value to the platinum play.
The Costs of Buying and Holding Platinum Bars and Coins
If one is looking to own platinum longer term, then the inconvenience of having the investment shipped to and from dealers may not be seen as that meaningful, or perhaps not meaningful at all.
Regardless, there is one issue that cannot be set aside that will impact all investments in physical platinum, which is the large spread that this involves, and is the case with all investments of physical precious metals.
Platinum is currently trading in the neighborhood of $1000 an ounce, but this does not mean that you can both buy and sell it for $1000 an ounce. Like all securities, there is a market for platinum, which involves both a bid and ask. These prices differ, and the difference between them is called the spread.
If you buy a stock for instance, you will pay a certain amount, and if you just look to immediately sell it, you will get a certain amount, and these amounts can differ. While the market may move a certain amount, the spread will move with it, and the spread always matters, even if you hold the position long term.
This is the part that escapes many investors, in platinum as well as in anything else, where they may think that the spread only matters at the time of the trades, and the spread is what it is, or may not even be seen as meaningful at all.
The impact of spreads is best illustrated when comparing different markets with different spreads. With buying physical platinum bars and coins, when we look at the market today, we will see a spread of over $100. Let’s say it’s $100 over what an ounce of platinum could have been traded for through other means.
In all cases, no matter how long you hold the platinum, the investment would have cost you an additional $100, not including other costs associated with buying physical platinum, such as shipping costs.
Since you can turn around a trade with securities based upon platinum for as little as $1 an ounce, the difference between this and spreads over $100 will amount to additional costs.
In essence, with a spread this large, the price of platinum will have to rise by the amount of the spread, and if it only goes up $100 in this example, you still haven’t broken even yet. If it goes up $200 and you sell it, your profit will be less than $100.
This is the case even if you hold it for 20 or 30 years, because there will still be a spread for physical platinum and you actually pay most of this up front. This is done to ensure that dealers will make enough profit to be able to achieve their objectives and keep their businesses running, although the competition from other platinum dealers will keep this spread in line with the market, the market of physical platinum dealership.
The difference in the spread, plus other associated costs, represent the true costs of owning platinum bars and coins. Many, if not most of those who buy platinum bars and coins do not properly account for this, and in some cases they may even buy the platinum purely for speculation, not realizing that there are far more cost effective ways to do this.
Should the physical ownership of the platinum have or be perceived as having enough value to at least offset the additional costs, in the order of over $100 an ounce, then it can make sense to buy platinum bars and coins, but only if this is truly the case.
Platinum can be bought in increments of a quarter ounce on up, in either bars or coins, and for those who are not particularly concerned with the added costs of this, it can indeed be a benefit to owning physical platinum.