It goes without saying that the past few years have been quite kind to holders of gold. In December 2015, the price of gold stood at $1,049. As of writing, gold was up to $1,650 – representing a gain of 57%. (As an interesting tidbit, the Federal Reserve started its interest rate raising in December 2015).
If the trend continues, the price of gold may surpass its all-time high of $1,895 per troy ounce. Gold last stood at $1,895 in September 2011.
The Platinum Picture
Although not as strong, the price of platinum has also been pretty for its holders. In September 2018, the price of platinum stood at $772. As of writing, the shiny precious metal was at $912 - a gain of 18% (the recent equity market trouble has also shown up in the price of platinum).
Overall, precious metals owners have benefited from a healthy environment in recent years. Why, though, has the price of gold been exceptionally strong?
The Ratio of the Price of Gold to the Price of Platinum (the Gold-Platinum Ratio)
The demand for gold compared to platinum is clearly visible with the gold-platinum ratio. In May 2008, the ratio was about 0.4, meaning that the price of a troy ounce of gold was only 40% that of platinum. Since that bottom, the gold-platinum ratio is up to 1.81. This means that the price of gold is 81% higher than the price of platinum. Historically, this would be inconceivable, but here we are.
One potential reading on the picture is that perhaps the ratio has reached a plateau.
The potential tipping could be ripe upon investors. The all-time high of the gold-platinum ratio was 1.82 on August 16, 2019. The ratio slowly declined from that peak but has since risen again. As of writing, the ratio is at 1.81, almost reaching its previous all-time high. Plateau?
Is The Ratio Ready for Cratering?
With the gold-platinum ratio close to its all-time high, one simple question ever investor ought to be asking himself is whether the gold-platinum ratio is ready for cratering. If yes, then one has to ascertain whether the ratio will fall because the price of gold falls or because the price of platinum rises. Assuming the former, this obvious implication is that the price of platinum is due for a strong 2020. Platinum owners would no doubt welcome this shift towards precious metals price leadership.
Platinum’s price last saw its all-time in March 2008 at $2,273. At $912, the metal would have an amazing run ahead of it – over 100%.
The view that platinum has a bright future in 2020 contains risks, of course. For one thing, the price of platinum is more connected with economic conditions and the business cycle than the price of gold. If the global economy sours, platinum has some downside. On the flip side, if the global economy moves up, the outlook is strong.
Overall, the gold-platinum ratio is almost at its all-time high last reached in 2008. Since that time, gold has had an incredible performance, now being worth 81% more than an ounce of platinum. This is a break from tradition, and something many investors would have thought impossible just ten years ago. But times change. Will they keep changing?