​Is Platinum Cheap...or Was It Too Expensive?

Palisade Global Investments |

Analysts regularly compare the relationship between two commodities, because there is often some sort of correlation; one price directly affects the movement of another. For example, gold and oil are connected: when oil prices increase so does inflation, which in turn creates a demand for gold prices.

Intuitively, gold and platinum are also correlated, both falling under the precious metals umbrella. Historically when gold prices increased, so did platinum. And whenever the prices deviated, the ratio returned to its historical mean.

Today, many in the industry claim that platinum is a bargain buy, citing its historic relationship to gold as evidence. So we decided to take a look. Indeed, from 1987 until present, gold traded on average at 0.78 the price of platinum. That is against today’s ratio of 1.28. By that metric, platinum is the better bargain.

However, this data is skewed by the 2000-2012 bull market in precious metals, a period where platinum significantly outperformed gold. Excluding that period from our data, gold’s historic ratio to platinum is 0.90. Therefore, it is really fair to say that platinum is cheap?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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