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What is going on with the gold - platinum ratio?

In recent years, gold has had an amazing run. Since bottoming at $1,049 in December 2015, gold is up to $1,650 - a gain of 57%. (As an interesting note, the American Federal Reserve began raising rates in December 2015).

The rise in the price of gold is approaching its all-time high of $1,895 per troy ounce reached in September 2011.

The Platinum Picture

The platinum picture is also healthy. Since bottoming in September 2018 at $772, the precious metal is $912 - a gain of 18%.

Recent years have been very good for owners of precious metals, but why has it been extraordinarily great for gold? 

The Gold-Platinum Ratio

The strength in gold relative to platinum is easily seen with the gold-platinum ratio. This ratio has been on a tear since bottoming in May 2008, going from 0.42 to 1.81. The strength in gold relative to other precious metals - including platinum - suggests that perhaps the ratio has reached a peak.

The tipping could already be upon us. The ratio peaked at 1.82 on August 16, 2019. Since then, the ratio slowly declined, but recently jumped again. At 1.81, the gold-platinum ratio is almost at its all-time high.


Has the Ratio Cratered?

The obvious question is whether the gold-platinum ratio is ready for cratering. If so, and assuming the price of gold continues on a moderately healthy growth path, the price of platinum is up for some very good times ahead. For owners of platinum, this would be a welcomed shift back to precious metals price leadership, a role the metal lost a few years back.

The price of platinum reached its all-time price point back in March 2008 at $2,273. At $912, the metal has a gain of over 100% ahead if it is to reach its all-time high again. 

Of course, being bullish on platinum is not without some risks. The precious metal responds much quicker to economic conditions than does the price of gold. Presuming the global economy strengthens over the coming year, the picture is very bright. If, on the other hand, the coronavirus puts a dent in global growth, platinum will be one of the first markets to know. 

Overall, the ratio of the price of gold to the price of platinum is well above where it traditionally would be and has been so since 2008. With the price of gold now having been trading above the price of platinum for over five years, the question is whether the ratio has reached a flipping point. The answer to this question is, of course, for the market to decide.