28 January 2014

Diversified Precious Metals Portfolio

A recent note by David Jollie of Mitsui Global Precious Metals on platinum and South African strikes (cliff notes: "any further gains to be small in scale" ie, buy rumour, sell fact) got me thinking about platinum as part of a precious metals portfolio.

I was asked about platinum on Friday in a Reuters Global Markets Forum live chat interview, and declined to give a view, saying that the Perth Mint doesn't follow platinum, as it is a small market, less liquid, and more risky and thus not something you therefore want to push on our generally conservative clients.

However, in 1994 the Perth Mint did recommend some platinum in a portfolio, producing the "Aussie Diversified Precious Metals Portfolio" which was a boxed set of
  • two 1 kilogram Kookaburra silver bullion coins
  • a 2oz Kangaroo gold bullion coin
  • a 1oz Koala platinum bullion coin
It never took off and the sets were eventually scrapped (I salvaged a plastic box, sans the coins) primarily because we charged a premium for the set (ie box) when investors could just buy the coins individually for lower cost. Anyway, the question is: how did that ratio of gold:silver:platinum perform?

Before I get to that, I would just note that our Depository clients are split into three groups. The first are those who only buy gold, the second those who only buy silver, and the third who buy both. What is interesting is almost all of those buying both gold and silver do so on a 50:50 basis by dollar value, say $10,000 worth of gold and $10,000 worth of silver. I'm not sure there is anything scientific about that allocation and probably just comes down to hedging one's bets.

So lets compare the performance of those three groups against the Aussie portfolio, using 30 Dec 1994 London Fix prices to 31 Dec 2013 (throwing in platinum for comparison):

Strategy Return
Gold Only 214%
Silver Only 302%
Platinum Only 226%
50% Gold, 50% Silver 258%
The Aussie 236%

I'd say if you're not too sure about whether gold or silver will be the better performer, the un-"modern portfolio theory" 50:50 strategy seems to have worked out. Of course, the above figures themselves are high unscientific with no real basis for the starting date beyond that was when the Aussie was launched, but hey, what do you want from a free blog? As always, do your own due diligence.


  1. A strong case can be made for gold and silver stocks or even the metal as a investment. But why just focus on gold and silver related companies when the universe of commodity stocks includes things like rare earth minerials and out of favor metals like uranium. Even food related stocks commonities. Seems like a more diverse investing approach is in order.

  2. I have never given platinum much attention, however cursory investigation - my first year uni chemistry text - reveals that platinum, while not residing in the same group on the periodic table as copper, silver & gold, has some similar qualities. Most importantly its chemical reactivity is second only to gold.

    Platinum does however have a much higher melting point & is less malleable. It is also one of the rarer elements. In ancient times, this would have been an impediment to coinage.

    That said its utility as a standard
    of value would seem assured in our technological age.

    I'm sure these basic chemical facts are all common knowledge to the boffins at the mint, right?

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