by Bespoke Investment Group
As gold has rallied over the past week or so, platinum has gone in the opposite direction. As shown in the first two charts below, gold remains in a nice long-term uptrend and close to all-time highs. Platinum, on the other hand, is currently closer to its lows of the last six months than its highs.
This recent divergence between gold and platinum has caused the ratio of platinum to gold to drop by quite a bit. As shown below, the current ratio is just 1.13, which means platinum is trading at 1.13 times the price of gold. Throughout the 2000s, platinum traded at around twice the price of gold. Once the financial crisis hit, however, the ratio collapsed as platinum significantly underperformed gold. This is largely due to the fact that platinum actually has an industrial use, while gold is simply a currency/inflation play. When the economy went in the tank, demand for platinum declined while demand for gold as a protection play soared. The ratio did bounce back after dropping below 1 as the economy recovered from the recession, but it has now been trending lower for more than a year. Another reason for the gold outperformance likely has to do with the way gold is marketed these days as a can't lose investment. Even though platinum is much more rare than gold, the yellow metal gets all the attention. With the ratio as low as it is, however, platinum may be the way to go.
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