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Gold to platinum ratio: Will platinum ever be this cheap again?​

14 December 2021

Tuesday 14 December 2021

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  • Platinum is rarer than gold
  • What is the gold to platinum ratio?
  • What does this ratio tell me?
Shae Russell
Shae Russell,
Group Communications Manager

Dear Investor,

Today we aren’t focusing on gold or silver. We’re switching gears to look at a much rarer precious metal…platinum.

Platinum (chemical symbol Pt) is one the of the rarest metals on Earth. Not only is Pt 30 times rarer than gold, it’s also an excellent store of wealth and it is highly sought after by industry.

Only 190 metric tonnes of platinum are mined each year compared to gold’s whopping 3,460 tonnes. To boot, gold is mined all over the world whereas the supply of platinum is concentrated to South Africa, with Russia a distant second.

There are more constraints on accessing platinum too. It’s deeper in the ground than gold, plus there’s more steps involved extracting it.

All of these are good reasons why platinum normally costs more than gold. 
But right now, this lustrous metal is much cheaper than gold. And one very important ratio may be signalling something…

What is the gold to platinum ratio?

The gold to platinum (gold:platinum) ratio is simply the relationship between the gold spot price and the platinum spot price. Both are quoted in in US dollars.

What this gold:platinum ratio tells you, however, is how many ounces of platinum it will take to buy one ounce of gold. When the ratio goes above one, it means platinum is cheaper than gold. When it falls below one, we know that platinum is more expensive per ounce than gold.

For the past two decadesI platinum was more expensive than gold.

In fact, if we go back to 2003-2005, the gold:platinum ratio was around 0.5. Meaning it would take half an ounce of platinum to buy one ounce gold.

That ratio was signalling to us that gold was cheaper relative to platinum. Come 2019 however, the ratio moved to 1.5. Telling us that it would now take 1.5 ounces of platinum to buy one ounce of gold. Making platinum cheaper compared to gold.

Have a look…

Gold to Platinum ratio [XAUXPT]
2012 - present

Since then, the gold:platinum ratio has been volatile, but one thing has remained consistent: The ratio has stayed above 1.5, suggesting that platinum is still undervalued  compared to gold.

As of today, the ratio sits at 1.9. Meaning, you would need 1.9 ounces of platinum just for one ounce gold.

What does the ratio tell you?

Some investors like to use to use the gold:platinum ratio to decide if they should buy one precious metal over the other.

Looking at the ratio over the past decade, we can see there are periods where it may have paid to alternate your gold or platinum purchases depending on whether the ratio was above or below 1.

However, a tale of caution when it comes to these precious metals. While the ratio suggests one is overvalued or undervalued, gold and platinum markets are very different. 

Gold is seen as a safe haven asset, where as platinum is traditionally considered an industrious metal. Supply chain bottle necks are impacting platinum at present, whereas gold is benefiting from economic uncertainty.

In addition, gold is widely mined and there is significant above ground stocks. Whereas platinum mining is concentrated to one country. Thus, the platinum market is far tighter than gold, leaving platinum vulnerable to shortages compared to gold.

The supply of platinum is linked to scrap metal, which has an additional link with how frequently people turn over their cars. In contrast to gold, where the scrap market has little impact.

Finally, the end use for both precious metals is very different. Gold is primarily used in investments and jewellery. Less than 10% of gold finds its way into technology and electronics. Over 70% of all platinum goes into the auto and industrial sector. Jewellery consumes another 20-30%, with investors mopping up the very little that is left over.   

The gold:platinum ratio can be difficult to trade, but it can be useful to point out times of extremes.

One of those extremes is now. Platinum is very rarely worth half of what gold is, and the gold:platinum ratio shows us historically how unusual this is.

To truly understand the investment case for platinum, click below to watch my interview with Trevor Raymond now. He and I discuss the current supply problems facing platinum and how more people are investing in these precious metals.

Until next time,
Shae Russell
Group Communications Manager,
For ABC Bullion

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