Platinum; Not All That Sparkles Is Gold:

October 10, 2013

MONTREAL-CANADA (Oct 10)  A new study indicates that the price fluctuations of platinum, and metals with similar chemical properties and located in the same mineral deposits such as palladium (that is, the “platinum group,”) have a higher correlation with U.S. business conditions than does gold, and have a time series very similar to crude oil.

These metals have important industrial uses. They are used for example, in automobile catalytic converters. Palladium in particular is often alloyed with silver for use in dentistry and electronics.

The group is also available to investors in physical form, sometimes as bars and sometimes in minted form. The U.S. Mint makes platinum bullion coins. The Royal Canadian Mint makes palladium coins.

Three Questions

The authors, James Ross McCown of the Toltec Group, an Oklahoma based consultancy, and Ron Shaw of Oklahoma City University, looked at three questions about this group of metals. First, can they help hedge against inflation (as measured either by retail or by wholesale prices)? Second, if so, how does their ability to do so compare with that of gold? Finally, can they help hedge against stock market fluctuations?

They conclude that the answers to these questions are respectively: yes, it depends on the time horizon measured, and yes.

Given the Capital Asset Pricing Model, the last of those three questions answers itself most readily. Platinum has negative beta vis-à-vis stocks at the five-year investment horizon, which suggests that it is a good choice for diversification. Platinum itself outdoes the rest of the “platinum group” in this respect.


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