Platinum Outshining Gold in the New Year

With gold falling throughout the end of 2012 and platinum spiking more than 10% since the beginning of 2013, the change has been enough to bring the price of an ounce of gold below that of an ounce of platinum for the first time since April of last year.

Why do we care? Well, the spread between platinum and gold is instructive thanks to the many similarities between the two metals. For one, they’re neighbors on the periodic table of elements and have many similar properties; both are resistant to corrosion and often used in jewelry. They are both rare metals (though platinum is somewhat rarer) and roughly equivalent in difficulty of extracting from the earth.

The main difference from an economic perspective is that platinum has more industrial uses, which means it tends to be more influenced by the “real economy,” while gold has a far more prominent psychological factor in its price. (When’s the last time you heard someone advocate switching our monetary system to the platinum standard?)

So what does the recent price inversion tell us about gold or platinum? One data point does not a story make, so we compared the front month daily closing price of gold to that of platinum going back to 1982 to see how this relationship has fared over the last few decades:

Disclaimer: past performance is not necessarily indicative of future results.

The spikes in the chart definitely tell a story – platinum’s rise during the dot-com era and again during the ’04 to ’07 boom led to a historically low ratio. Economic crises have had the reverse effect, most noticeable in the massive spike in the ratio during the 2008 financial crisis.

In addition, the last year, with gold selling at a premium to platinum, is definitely unusual from a historical perspective. Over the 30-year history we examined the average ratio between gold at platinum was just below 0.8, meaning it would take a further 20% fall in gold prices relative to platinum just to get back to the historical average. And a return to the 2004-2007 levels would mean an even steeper decline of 50% in gold prices compared to platinum. Of course, this is only the spread, so such an outcome could occur through gold prices rising (but platinum rising faster) or by platinum prices falling (but gold falling faster).

That chart doesn’t give us a clear picture of how the relationship has fared more recently, so we also took closer look at the last two years, and added in a 200 day moving average:

Disclaimer: past performance is not necessarily indicative of future results.

We don’t pretend to be chartists, nor do we have a crystal ball to tell us whether this is a fake out lower or a real breakout that will take us back to the historical average spread between the two metals. There’s certainly a possibility of renewed crisis down the road (when isn’t there?) that could keep gold’s psychological premium over platinum alive and well, but this is one trade that, if it did revert to the mean, would definitely turn some heads.

One comment

  1. The oddity isn’t that Platinum was trading at a premium to gold….the oddity is that Platinum ever trades at a discount to gold.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.