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The `i-word' pushes up platinum and silver

By Thomas WattersonStaff writer of The Christian Science Monitor / May 11, 1988

As far as anyone can tell, serious inflation has not returned, not yet anyway. But you might not know that from listening to all the talk about inflation lately, or watching the sales of precious metals. When the 5.4 percent unemployment figures for April were announced last week, those reports included - often in the same sentence - concerns that a tightening job market would lead to higher wages and thus higher prices. As a result of that and other signs, the ``i-word'' is being heard more often these days, and many investors are beginning to look for ways to protect their portfolios.

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One of the more traditional ways is through metals like gold, platinum, or silver. Gold is well known as the classic inflation hedge, but investors are also showing more interest in silver and platinum. While prices of these metals are also tied to inflation, they have other characteristics that make them behave a little differently.

Platinum: precious to industry

``Platinum has different supply-and-demand fundamentals'' than silver or gold, says Andrea Gould, director of investments at Platinum Guild International. ``The dynamics are very different.''

About 85 percent of the world's platinum supply is used by industry, she says. A great deal of it is used in catalytic converters to control emissions from automobiles. Until last year, only cars made for sale in the United States and Canada used the converters, but that's changing. Starting with the 1988 model year, cars sold in Europe have them, too. The phase-in began with smaller cars and will be complete with the larger vehicles in 1991, Ms. Gould says. That will help raise Europe's use of platinum from 187,000 ounces last year to more than 450,000 by 1991, she estimates.

Because of its heavy use by industry, platinum is also a sort of business barometer. When the economy is growing, the price of the metal goes up, just as it goes down when business indicators are less favorable.

Platinum is also used in jewelry, where it is considered more durable that yellow or white gold - and does a better job of holding stones in place - and more resistant to tarnish than silver. While jewelers all over the world sell some platinum jewelry, it's especially popular in Japan.

``The Japanese use a great deal of platinum in their jewelry,'' Gould says. ``More than any other country. They buy a lot of platinum.''

While platinum is being used in more countries, it comes from very few places. The two principal producers are South Africa and the Soviet Union, although a mine is operating in Nyes, Mont.

This combination of growing demand and narrow supply has had the expected economic result: high prices. In March of 1986, platinum sold for about $240 an ounce, Gould says. By September of that year, it had leaped to $680. It has since slipped back - a little - to about $525 an ounce, but that's still some $80 an ounce more than gold.

For the average investor, the best way to buy platinum is in the form of a coin. Unlike gold or silver, which have coins produced by several countries, there is only one platinum coin. Called the Noble, it is legal tender on the Isle of Man and comes in one-ounce, one-half-ounce, one-quarter-ounce, and one-tenth-ounce sizes.

The coins can be purchased from many coin and precious-metals dealers, as well as through many brokerage firms. You should expect to pay a 5 to 7 percent premium over the quoted platinum price for the one-ounce coin, Gould says, and a higher percentage for the smaller sizes.

Silver: `poor man's gold'