The Case for Platinum

If you are like me and see enough supporting evidence the precious metals markets have turned the corner and are not yet fully allocated, I want to make the case for some exposure into platinum. Gold and silver are what first come to mind for most people when discussing or investing in precious metals. They are the most liquid and have the greatest availability in both physical and financial instrument form and as such many forget about platinum. But based upon what I see in the charts right now, platinum provides the potential for greater forward returns of the big three.

Let’s take a look at the last two year performance chart of platinum and gold. Historically they move in lockstep (what occurred prior to 2016 is what you would expect) but since the start of this year gold has substantially outperformed platinum creating a huge divergence. This divergence is what is creating the potential out-performance opportunity. I expect returns to eventually turn back to pre-2016 days and as such either gold has to fall to platinum’s level or platinum has to rise to catch-up with gold. Or a little of both.

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Taking a 40+ year look at the monthly ratio of platinum to gold in the chart below we see it ranges between .7 - 2.5. The upper boundaries have provided a good time to sell platinum and buy gold. The .7 level, on the other hand which was hit in Feb of this year provides excellent opportunities to sell gold and buy platinum.

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Changing the view once again, this time to a 5-year weekly look at the platinum to gold ratio we can see, while it has not yet confirmed, we are closing in on forming a w-bottom with bullish positive RSI momentum divergence. Looking to the left you can see this exact same pattern formed (from higher levels) in early 2012. Those that took the signal and switched to platinum at that time outperformed gold by more than 35% peak to trough. It looks like we are setting up to do the exact same thing again but with more upside potential.

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There is more than enough technical evidence here to suggest platinum, at least for the intermediate term future is the better precious metals investment candidate. For those who are leery of the metals, a pairs trade of long platinum and short gold should provide very low risk, good return reversion to the mean opportunity.