How To Invest in Gold and Other Hard Assets

Platinum:Gold Ratio

While gold is trading near all-time highs, platinum is trading about
$700 below its all-time high reached in 2008. Since 1972, platinum
has*traded at about 1.35 times the price of Gold on average. Right
now, however,*platinum is even cheaper than gold, trading at only 0.92
times the price of Gold. This is a rather “rare” situation as it only
happened in the early 80?s and for a short time in 1974. In 1972, 2000
and 2008 it even traded as much as 2.30 times the price of Gold
(monthly basis). Based on this ratio over the last 40 years, we can
say that Platinum is “cheap” relative to Gold.

Platinum:Silver Ratio

Over the last 40 years, platinum traded at about 76 times the price of
silver (monthly average). Right now, it is trading at only 47.26 times
the price of silver, far below the historical average ratio. In 2003,
it even traded as high as 150 times the price of silver. In 1979
however, it traded as little as 20 times the price of silver, but that
was rather an “exception”, as silver jumped from $6/oz to $48.70/oz,
as the Hunt Brothers tried to corner the silver market. Taking out
this exception from the chart below, I think it’s fair to say that
platinum is also cheap compared to silver:

Platinum:Palladium Ratio

Over the last 40 years, the average platinum-to-palladium ratio was
3.17. Right now, it is 2.53. In 2001 however, it was a low as 0.60*
because of rumours that the Russian stockpile of alladium was almost
depleted. Leaving this “exception” of 2001 aside, I think it’s fair to
say platinum is cheap relative to palladium, based on this ratio of
the last 40 years:

Gold:Silver Ratio

Many argue that the gold-to-silver ratio is headed back to 15, a level
not seen since 1979. However, as explained above, this move in silver
was rather “exceptional”, as the Hunt Brothers tried to corner the
market. When we look at the historical average of the gold-to-silver
ratio over the last 40 years, we can see that the ratio now (51.60),
is just slightly below the monthly average of the last 40 years
(56.42). This means Gold is not cheap, nor expensive compared to
Silver.

When we look at the daily gold-to-silver ratio going back to 1920, we
can see that the daily average (52.32) doesn’t differ that much from
the monthly average of the last 40 years (56.42). This tells me that
55 is a good estimate of the average gold-to-silver ratio.

In the chart below, we can see that gold was expensive compared to
silver when the gold-to-silver ratio was higher than 80, and that
silver was expensive to gold when the ratio dropped below 30?ish. In
April earlier this year, the ratio dropped towards 30, meaning silver
was getting expensive relative to gold, and has now reversed sharply,
back towards its 90 years average.

Conclusion

Based on the charts in this article, we can conclude that:

Platinum appears to be cheap relative to Gold
Platinum appears to be cheap relative to Silver
Platinum appears to be cheap relative to Palladium
Platinum thus appears cheap relative to the other*Precious Metal
discussed in this article.