Platinum; Not All That Sparkles Is Gold:

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.


All the members of the platinum group are highly correlated with inflation, more so if inflation is measured by wholesale than by consumer/retail prices.

Gold has lower correlations with the consumer prices than either palladium or platinum for every time horizon the authors tested in this data. That isn’t strictly true of wholesale prices, but gold beats palladium in this respect only for the one year and two year horizons, then losing out whenever the horizon is shorter.

Crude Oil

For the purpose of understanding the market, the authors compared the platinum group with crude oil. They used the data of Johnson Matthey, a platinum groups metals refiner, manufacturer, and trader, as their source for prices from July 1, 1992 through end of year 2011. In the graph above that is compared to gold prices from the London Bullion Merchants Ass’n, and daily spot prices of West Texas Intermediate.

As you can see from the chart, palladium shows a spike in the year 2000 that is unique to it. Platinum shows a gentler rise-and-fall that year. Neither gold nor oil shows such a rise. In general, what this shows is that these are industrial metals, not something driven by currency or quasi-currency uses or by speculation.

In 2008, oil spiked, as did platinum in a remarkable parallel. Neither palladium nor gold shared in this pattern.