Pen does have diminishing returns, but not in the usual sense.

Most mobs have around 18k spell/physical resist. While the CP star does provide a generic flat bonus with only slight decay in terms of value per star, once you hit that ~18k mark for your total pen, you have effectively reduced your targets armor to 0. Once there, any further investment into pen provides exactly no damage increase. Hence the unusual diminishing returns.

All that said, the amount of points it takes to reach the 5160 pen that a gold sharpened weapon gives is rather high (don't know it off the tip of my head ) and according to Asayre, there is a range of points when investing into a star that increases your crit damage outweighs the equivalent investment into the pen star.

If you want more specifics, try looking into Asayre's Arithmagic posts. I would provide links but I'm on mobile lol

I highly recommend using sharpened weapons though. For reference, I believe it was cited that using precise weapons results in a 3% dps increase (over non-traited weapons) while using sharpened provides a net 11% increase (again over no trait).

The problem with penetration from cp is it's pretty expensive; 60cp will get you about 3000 penetration 64cp gets you exactly 3515 penetration, whereas the sharpened trait gives you over 5000 penetration, and the spinners/spriggans set 5 piece gives you 4000 penetration. I have all 3 and currently sit at 17.5k spell pen with light armour passive and I love it in both pve and pvp. I've definitely noticed a dps increase just by adding 5 spinners. But if you had to choose then sharpened > spinners/spiggans > cp tree.

Edit: many players in pvp sit at the resistance cap of 32k, so if you can achieve 18k pen for pvp it wouldn't be overkill imo. There is an addon for pc that simply adds your penetration value to your character sheet, very useful.

Edit 2 to adjust cp pen figures after checking in game.