Unlike gold prices, platinum prices are influenced by both investment and commercial catalysts with approximately 37-42% of the world’s platinum demand coming from the automotive industry, 2-11% coming from investment demand, and 31-38% coming from jewelry and 18-24% industrial demand.

In this article, we will take a look at the recent move in platinum prices and where the precious metal may be headed over the coming year.

Platinum has proven to be a reliable hedge against both economic uncertainty and rising inflation alongside many other precious metals. With economic uncertainty on the rise and the potential for interest rate hikes in the U.S., precious metals have experienced a resurgence over the past several months among investors. These investors are hoping to hedge portfolios consisting of potentially overpriced equities and bonds.

Platinum prices rallied about 70% between August 2007 and February 2008 as the United States entered the Great Recession, outperforming gold’s 45% price increase over the same timeframe. With industrial use cases falling due to the poor economy, the dramatic increase suggests that traders were looking towards platinum as an effective hedge against economic uncertainty — perhaps even more so than gold in some cases.

Platinum has also proven to be a reliable hedge against rising inflation. According to the World Platinum Investment Council, platinum prices have realized a 16% annualized return during a period of rising inflation compared to just 9% for gold. Investors look towards precious metals like platinum since they tend to hold their value over time, while currencies can be subject to the effects of inflation that can erode their value.

The gap between platinum supply and demand has been growing over the past several years, which has reduced platinum stockpiles and could be responsible for the increase in price. At the same time, demand for the metal has remained relatively robust from industrial, jewelry, and investment sources. These dynamics have created an attractive environment for the precious metals moving into the rest of 2016 and beyond.

Platinum supplies have been in a deficit since 2011, and the World Platinum Investment Council expects that deficit to continue through 2021. The organization tripled its deficit projection from 130,000 ounces to 350,000 ounces in its first-quarter industry report. While many industrial metals have experienced significant surpluses thanks to China’s slowdown, platinum is a notable exception that remains highly in demand.

The demand side of the equation remains robust at the moment after a 20% slide in prices during 2015. While net ETF holdings fell by 240,000 ounces last year, Japan contributed to record bar and coin purchases of 485,000 ounces. These trends appear to be continuing into 2016 with 140,000 ounces of bar and coin purchases during the first quarter. And finally, automotive demand for catalytic converters appears to be on the rise again in Q1 as well.

The easiest way to invest in platinum is through exchange-traded funds (ETFs) that are traded on stock exchanges, since they are cheaper and more convenient that purchasing physical commodities or participating in the futures market.

According to ETFdb, the three most popular platinum ETFs are:

• ETFS Physical Platinum Shares ETF (PPLT)
• ETRACS CMCI Long Platinum Total Return ETN (PTM)
• iPath Bloomberg Platinum Subindex Total Return ETN (PGM)

Investors interested in these options should be sure to consider the ETFs’ expense ratios, liquidity and other important metrics before taking positions, since these dynamics could have a significant impact on the performance of the fund over time.

Platinum has been a strong performer since the beginning of the year and could see more upside ahead given the economic uncertainty and potential for rising interest rates. However, investors should be mindful that platinum tends to be more volatile than gold and has industrial factors that could influence prices. Those interested in purchasing platinum may want to consider a number of different platinum ETFs to build exposure.