Hat tip to Kid Dynamite for bringing the platinum/gold ratio to my attention.
Jonathan Hoenig wrote an article on Smart Money today highlighting the sharp decline in platinum relative to gold in recent years. Over the last 40 years, platinum has traded at a discount to gold for only short periods of time in the mid-1970’s and 1980’s. As shown on the chart below, this highly volatile ratio has ranged from 0.75x at the low end to 2.35x at the high end. Generally, the ratio tends to move with economic conditions but the supply/demand dynamics of each metal at a given time also plays a major role.
With the ratio now back below 1.0, Hoenig thinks that platinum is the more attractive metal. Certainly from a mean reversion perspective, I would agree. However, gold has outperformed for good reason in recent years - a global economic recession and declining faith in the global financial and fiat currency system which favors monetary metals over industrial metals. If one believes economic growth is poised to rebound and the financial system regains credibility, platinum is likely to outperform substantially. But if not, the ratio may fall even lower.
I'm on the fence on this idea. I like it from a mean-reversion perspective and also somewhat as a hedge to my gold positions. That is, if by bearish view on the global economy turn out to be wrong, platinum will most definitely outperform. So it may make sense to own some as a diversifier. But it could be too early to step in now.