Platinum has yet to recapture the highs seen in 2008. Is there opportunity here for an investor or a warning that not all precious metals are the same? The focus of this article will be to compare platinum with gold and silver to determine which provides the best return with the lowest risk.
Platinum is the eighth rarest element found in the earth's crust. It is difficult to obtain, as 30 tons are produced annually. As a comparison, 2,800 tons of gold and 23,000 tons of silver are produced annually. Platinum has extensive industrial uses, with catalytic convertors and laboratory equipment as two of the most prominent. (Source Wikipedia).
With extensive industrial uses and difficulty in obtaining the product, the potential for explosive gains due to supply /demand equilibrium seem to be in place. Unfortunately, this has not been the case, as evidenced by the chart below.
Platinum peaked in February of 2008 at $2252 per ounce only to plummet eight months later to $774. It has since recouped most of its loss, however, it is still trading significantly below its highs in 2008. Let's compare its performance in the same time frame to the performance of gold and then silver.
Gold has performed very well in the same timeframe, more than doubling. More impressively, it has achieved this feat without much volatility, as the pullbacks have been orderly, and not severe.
Silver has performed quite similarly to gold, however, with more volatility. Silver performed remarkably well in the August 2010 through early February 2011 time frame, more than doubling. Silver sold off rather sharply, and is currently more than 30% off its highs.
As a conservative investor looking for some precious metals exposure, I would avoid platinum entirely. Based on its recent performance, it has underperformed gold and silver respectively, and in my view, doesn't offer a compelling risk/reward ratio. I view gold, and especially the gold ETF (NYSEARCA:GLD) as the most acceptable choice, due to its lower volatility and superior risk/reward ratio.
Disclosure: I am long (GLD).