U.S. Coin Collecting

Platinum – the Other Precious Metal

Gold and silver are not the only precious metals. In fact, if price were the only determining factor,platinum is clearly the most precious of the three. Presently an ounce of platinum is some $285 more expensive than an ounce of gold, and not too long ago the difference was $1000. But there are factors other than price that need to be considered.

For example, platinum does not have any history as money. Gold is money, and silver has both a monetary and industrial demand. In contrast, platinum's usefulness arises from its industrial applications. Though some mints have fabricated platinum coins, they have done so for collectors, not for use as currency.

Platinum has never been used as currency, and its usefulness this way is limited. Its industrial applications are far more important than any potential monetary application, which can be better filled by gold or even silver. So given these circumstances, does platinum still have a role to play in your portfolio? The answer is a resounding yes.

Beyond its industrial applications, platinum can be useful as a store of value. In this respect and ignoring for the moment their different prices, owning an ounce of physical platinum is like owning an ounce of silver or an ounce of gold. All three are tangible assets, so they do not have counterparty risk. Because physical metal is not a financial asset, the value of any of these metals does not depend upon anyone's promise.

It is also important to note that platinum's differences compared to gold can be advantageous. They make platinum a useful diversifier in your portfolio. For example, the demand for platinum is generally countercyclical to the demand for gold. When prevailing economic conditions are weak, the demand for platinum tends to fall, while the demand for gold rises. Consequently, platinumdoes not always trade at a premium to gold, so owning both metals can reduce the price volatility of your precious metal assets.

Finally, because it is an industrial metal, platinum has never been confiscated by governments. Given that one of the greatest risks today to your precious metal portfolio is adverse government legislation – confiscation, punitive tax rates, etc. – this characteristic alone makes platinumattractive.

There is no set rule as to how much platinum anyone should own, if any. But if you determine thatplatinum can be useful to you for the reasons mentioned above, allocating 10% of your precious metal portfolio to platinum provides a reasonable mix.

Platinum is a different kind of precious metal. It is precious because it is expensive, not because of any monetary attributes. Nevertheless, platinum can play a useful role in diversifying a precious metal portfolio.

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