The 46-Year Record of Platinum-Gold
A Monday Morning Musing
from Mickey the Mercenary Geologist
February 6, 2017
The gold to silver and platinum
to gold price ratios determine the relative value of the precious metals and
are useful parameters in deciding which metal to buy at any given time (
Mercenary Video, March 19, 2016
In a previous musing, I documented
the history of gold and silver prices and gold-silver ratios from the United
States’ abandonment of the gold standard in August 1971 to present (
Mercenary Musing, May 9, 2016
In today’s precious metals
analysis, I focus on the distribution of platinum-gold ratios over the past 46
The monthly average price
charts for each metal from January 1971 to present are shown below:
The price charts show similar
patterns and a general correlation of gold and platinum prices. However,
platinum is more volatile than gold and subject to parabolic spikes.
Platinum to gold ratios show
wide variance over the 46 year period ranging from highs above 2.5 before and
soon after Nixon began taking the United States off the gold standard to
periodic lows below 1.0:
Our data set covers 553
months beginning in January 1971. The distribution of ratios in both tabular and
chart format follows:
Distribution of Pt:Au Ratios
% of Months
From our data set and the distributions
of monthly average platinum-gold ratios from January 1971 thru January 2017, I
glean the following:
A ratio of less than 0.75 is a
single outlier that occurred once during the second half of 1982 when overall ratios
Ratios <0.85 are quite unusual at
4.7%. They occurred for two months in the first quarter of 1975, the
aforementioned six months in 1982, in June-July of 1985, and for an ongoing run
of 16 months that commenced in October 2015.
Ratios from 0.85 to 1.0 constitute
15.0% of the record.
Pt:Au from 1.0 to 1.25 is the most
common range and comprises 34.7% of ratios since 1971.
The ratios between 1.25 and 1.5
occur 19.3% of the time.
Ratios from 1.5 to 2.0 make up 15.4%
of the record.
The 2.0-2.5 interval covers 8.9%
of the months in our compendium.
The 11 monthly outliers at >2.5
comprise 2.0% of the total record and have not occurred since 1971.
From a compendium of sources,
the average crustal abundance of both metals is around 4 ppb. Based solely on
this fact, platinum and gold should trade at about the same price.
And indeed, our compilation
shows that for nearly 50% of the time since gold was decoupled from the world’s
reserve currency and allowed to trade freely on exchanges, the price ratio has
ranged from 0.85 to 1.25. That said, since January 1971, the average price of
platinum has been $637/oz and gold has been $518/oz for an overall ratio of
1.23:1. Clearly there are other factors other than the nearly equal crustal
abundances that account for this historic price relationship.
A variety of supply and
demand factors cause platinum to trade at a premium to gold:
Platinum is a much smaller market.
Cumulative world production of platinum is estimated to be about 5% of gold (9400
tonnes versus 182,000 tonnes). From 1994-2014, 3700 tonnes of platinum were
mined versus 52,600 tonnes of gold or about 7% (source: USGS).
Platinum is largely an industrial
metal. Catalytic converters, electronics, petroleum and chemical catalysts,
medical technologies, and many minor uses constitute over 60% of its annual
demand. Around 30% is used in jewelry and 10% for investment demand. Also, 30%
of the annual platinum supply now comes from recycling, mostly from catalytic
converters. Some demand is consumed and lost to the marketplace.
Gold is overwhelmingly a precious
metal; 90% is used in jewelry and investments and only 10% in industrial
applications. An estimated 98% of all the gold ever mined in the world remains
available and held in jewelry, by central banks, in private hoards, and as fabricated
products (source: USGS).
About 70% of yearly platinum mine
supply comes from South Africa, a geopolitically risky country. Much new
platinum is a by-product of nickel-copper mining and smelting; therefore, annual
platinum production is dependent on the supply-demand fundamentals and prices
of these primary metals.
Fluctuations in the relative
prices of platinum and gold are largely driven by:
the overall growth and health of
the world’s economy and in the case of platinum, the automotive industry;
labor, power, currency, and political
issues in South Africa that cause major perturbations in the platinum supply;
safe haven hoarding of gold and to
a much lesser extent, platinum, in times of economic uncertainty and major
speculators moving in and out of paper
markets of both metals (bullion exchanges, ETFs, and derivatives) and to a lesser
extent, central bank trading of physical gold.
In my opinion, gold is the
only real money. Thus it is my safe haven of choice and insurance policy
against financial calamity.
Platinum functions both as a
precious and industrial metal. It is usually tied to the price of gold in both
short- and long-term trading patterns. In times of financial distress and
economic turmoil, platinum tends to behave more like gold with widespread
The platinum-gold ratio can
be used to ascertain whether one metal is over- or undervalued with respect to
the other. The current monthly average ratio below 0.85 is unusual and indicates
that platinum is severely undervalued with respect to gold.
When ratios are very low, I choose
to buy platinum instead of gold. Note that the mark-up to buy or sell platinum is
two to three times higher than for gold; that additional cost becomes a factor
in my evaluation process.
I strive to maintain 10-20%
of my net worth in physical bullion. Most is in gold but I always have a
portion in platinum and silver.
As a hoarder, my basic
strategy for accumulating gold or other precious metals is to buy during
downticks in price regardless of a bull or bear market cycle. In a previous
musing, I showed that there is seasonality to the gold price and that the best time
to buy is from mid-June to mid-August of any given year (
Mercenary Musing, January 4,
). The same strategy can be
applied to platinum.
Once again folks, that is the
way I see it.
And the way I do it.
Ciao for now,
McIntyre is the research assistant for
and gold prices were compiled from Kitco.com.
Mercenary Geologist Michael S. “Mickey” Fulp
is a Certified Professional
with a B.Sc. Earth Sciences with honor from the
University of Tulsa, and M.Sc. Geology from the University of New Mexico.
Mickey has 35 years experience as an exploration geologist and analyst
searching for economic deposits of base and precious metals, industrial
minerals, uranium, coal, oil and gas, and water in North and South America,
Europe, and Asia
Mickey worked for
junior explorers, major mining companies, private companies, and investors as a
consulting economic geologist for over 20 years, specializing in geological
mapping, property evaluation, and business development. In addition to
Mickey’s professional credentials and experience, he is high-altitude
proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made
four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.
well-known and highly respected throughout the mining and exploration community
due to his ongoing work as an analyst, writer, and speaker.
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