Investment Potential and Risk Hedging Characteristics of Platinum Group Metals

Abstract

We examine the investment potential and risk-hedging characteristics of platinum, palladium, and rhodium by analyzing returns on their spot prices and comparing them with gold, crude oil, and stocks. The three characteristics that we examine that may be of the most importance to investors are the correlation with inflation, the correlation with foreign exchange rates, and the systematic risk of the investments. We find platinum is useful as a hedge against all three factors, and is also useful as a safe haven in periods of extreme stock market declines. Palladium and rhodium do not show the same extensive hedging capabilities.

Keywords: platinum, palladium, investments

JEL Classification: G11