As of Oct. 27, gold
prices were hovering around $1,747 per ounce. Platinum, on the
other hand, was selling for about $1,636 an ounce.
This means it takes just 0.93 ounces of gold to buy an ounce of
platinum. Or, from another perspective, you could trade in one
ounce of gold for 1.07 ounces of platinum.
It's not so much the size of the gold premium that matters -- the
very existence of a premium is highly unusual. In fact, gold hasn't
been worth more than platinum since 2008. Before that, you have to
go back to January 1992 to see the last time the yellow metal
traded this far above parity to the white one.
In other words, platinum prices relative to gold are at their
cheapest level in nearly 20 years.
This has been a one-sided relationship throughout the years.
Platinum almost always has the upper hand over gold, in terms of
price. That's to be expected, considering platinum is about 30
times rarer. Annual platinum production is just a tiny sliver
compared with that of gold.
That's what makes this such an odd occurrence.
The last time it happened was December 2008, when gold was soaring
as a safe haven, just as weak auto sales were sapping demand for
platinum (which is commonly used in catalytic converters). In that
particular case, platinum retook gold just a few days later and
went on to post a powerful 130%-plus gain during the next two
This time around, the extreme ratio has persisted for a couple
months. It's not so much because platinum prices have nosedived
(they're down about 9% for the year), but rather because gold is in
the 11th year of a
and continues to soar. Prices have climbed another 25% since the
start of the year.
On Jan. 1, it took 1.25 ounces of gold to buy one ounce of
has now slipped all the way below 1:1. This is more than just a
As you can see from the chart below, we've been in unprecedented
Platinum has traded about 64% above gold on average during the past
decade. Based on this, and with gold at $1,747 an ounce, you might
expect platinum to have surged above $2,800 an ounce. Instead, it
has sunk below $1,650.
This means either gold is too expensive, or platinum is too cheap.
Personally, I think it's the latter. Speculators might consider
this an opportune time to enter a pair trade by going long platinum
and short gold. This would remove any outside influences and just
capture the performance of one metal against the other.
This strategy has a high probability of success because there's no
reason for platinum to be below gold. But I'm not a trader, nor am
I betting against gold. I think the better solution for long-term
investors is to simply
platinum -- and not just because a chart tells them to.
Action to Take -->
Platinum group metals (PGMs) are irreplaceable and will remain in
high demand. Auto production is expected to rise, which should
boost demand. There are looming strike threats in South Africa,
home to 80% of the world's supply. As my colleague David Sterman
recently pointed out
, the world's other major producer, Russia, has warned that output
will begin falling.
You won't find any publicly-traded U.S. platinum companies. But
First Trust has conveniently packaged all of the world's top
suppliers in one place. For a modest annual cost of just 0.70%, the
First Trust ISE Global Platinum fund (Nasdaq:
offers a diverse global basket of 24 major producers, including
well-positioned leaders such as Impala Platinum and Anglo Platinum.
exchange-traded fund (
was punished during the selloff and was down nearly 50% for the
year before a strong rally in October. But I still think this in an
opportune entry point for long-term investors.
-- Nathan Slaughter
P.S. -- In a world of crooked politicians, paper money and
ballooning government debt, investors need real, tangible value.
Gold, commodities, energy, and other natural resources are in short
supply, yet worldwide demand is exploding, making these rare assets
some of the best investments on Earth. For more on how you can
profit from the global scarcity trend, watch my special
presentation "The 9 Best Stocks to Own For the Next Decade."
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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