Platinum for Commodities?

With gold and silver rising (and taking a breather) recently, there was talk among my various channels on another overlooked precious metal: platinum.

Platinum is a silver-grey metal which is non-reactive and highly resistant to corrosion, like gold. Platinum has been used for centuries as jewellery, although not as extensive as gold.  Perhaps it is best known for its modern use, that as a catalyst in a catalytic converter in vehicles that still utilize internal combustion engines.

 

Platinum’s performance, at least in price, did not really conform with its precious metal siblings gold and silver. While gold and silver historically were somewhat positively correlated with each other, for platinum, that held true for a while until 2016 or so when it started to diverge (see Figure 1).

Fig.1: Platinum prices (blue) vs gold prices (orange) from 1985 to present. Grey columns denote recession periods. Source: Macrotrends.

Despite platinum being scarcer and costs more to process than gold, there were a few reasons why platinum prices had dropped, and mostly these were vehicle-related; in the universe of catalytic converters, there is another metal that is competing in their use, which is palladium. Also, platinum is used mostly in diesel engines while palladium is in petrol-powered vehicles. With the statistics (based on a few studies) of diesel vehicles emitting more CO2 than petrol ones, the heightened awareness of climate change, and the accelerated adoption of electric vehicles, platinum had seen its functions reduced.

 

Now comes the question: does platinum earn a place in The Bedokian Portfolio’s commodities portion?

 

Going Back To The Basics

The basic premise of having different asset classes within The Bedokian Portfolio is the reduction of risks, and this is achieved via diversification and its related concept, correlation. The commodities asset class, as described in my eBook, is good to own in times of high inflation or hyperinflation, and a safe haven during economic crisis due to its low or negative correlation with equities and bonds, thus as a form of insurance.

 

With this, let us have a look at the correlations between platinum and the other commodities for The Bedokian Portfolio (gold, silver, oil), and other asset classes using their respective ETFs (see Figure 2):

Name	Ticker	PPLT	GLD	SLV	BNO	VT	BND	VNQ	CASHX
abrdn Physical Platinum Shares ETF	PPLT	1.00	0.56	0.70	0.35	0.37	0.02	-0.05	0.19
SPDR Gold Shares	GLD	0.56	1.00	0.86	0.04	0.20	0.57	0.06	0.32
iShares Silver Trust	SLV	0.70	0.86	1.00	-0.02	0.19	0.32	-0.17	0.13
United States Brent Oil	BNO	0.35	0.04	-0.02	1.00	0.17	-0.30	0.19	0.06
Vanguard Total World Stock ETF	VT	0.37	0.20	0.19	0.17	1.00	0.48	0.54	0.12
Vanguard Total Bond Market ETF	BND	0.02	0.57	0.32	-0.30	0.48	1.00	0.50	0.04
Vanguard Real Estate ETF	VNQ	-0.05	0.06	-0.17	0.19	0.54	0.50	1.00	-0.15
Cash	CASHX	0.19	0.32	0.13	0.06	0.12	0.04	-0.15	1.00

 

Fig.2: Correlation (based on annual returns) between platinum, gold, silver and oil, equities, bonds, real estate investment trusts and cash, using their respective ETFs PPLT, GLD, SLV, BNO, VT, BND, VNQ and CASHX, Jan 2011 to Dec 2023. Jan 2011 was selected to be the start date as PPLT was incorporated in 2010. Source: Portfolio Visualizer.

Looking at platinum’s correlation with the other major asset classes, the numbers were low with reference to equities, bonds and cash, and negative to real estate, so it qualifies to be a diversifying asset in a portfolio, like gold, silver and to a certain extent, oil. 

 

It Is All About Exposure

 

Truth be told, platinum was hardly seen by many investors as a hedge against inflation nor a safe haven, judging from the price movements over the years. If you had read enough financial news headlines, in times of crisis, gold was always mentioned first, as over the times it had been associated as such. The price movements of platinum were obvious; in Figure 1, during the Great Recession in 2008/2009 and COVID-19 in 2020, the price of platinum suffered huge drops, only recovering in the latter part of those periods.

 

Platinum prices going up in the later stages of a recession period was a typical characteristic of basic metals, like copper, which signalled the beginning of the next boom cycle. Although one could argue that silver and oil could have that characteristic since they also have industrial applications, for platinum 59% of its use were in just two fields: automotive (41.08%) and jewellery (18.12%)¹, and with the limitations stated in the first section of this post, they further exacerbated its use cases. 

 

On the other hand, silver’s uses were more spread out, and recent news had shown that it was the next go-to precious metal after gold. Same goes for oil with many uses and it is dominating the headlines recently.

 

Is Platinum Still Feasible?

 

Platinum is purportedly rarer than gold, as one source puts it that there are 30 times more gold than platinum on Earth, so by logic the price of gold would be subservient to platinum’s (at least for the most part as shown in Figure 1). However, the points highlighted above had seen the disadvantage of platinum over gold. Perhaps when the markets (and cultures) realise its rarity and begin a paradigm shift towards platinum, then that may be the time to consider it as part of commodities in one’s Bedokian Portfolio. As for now, I would not include it.

 

 

1 – Distribution of platinum demand worldwide in 2023, by end use sector. Statista. 19 Apr 2024. https://www.statista.com/statistics/271231/use-of-platinum/ (accessed 30 Apr 2024)