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Understanding Precious Metals and their Cross Rates

PART:
1 2 3 4 5 6
Part 2
Understanding Precious Metals and their Cross Rates PART 2 OF 6

The Gold-Platinum Ratio: Mapping Movement

Platinum deficits

As platinum markets are looking at a deficit in supply in 2017, the fundamentals for the price of these metals seem supportive. According to the World Platinum Investment Council, the deficit could reach almost 120,000 ounces—higher than the previously predicted deficit of 100,000 ounces. Why? Platinum is used widely as an autocatalyst that can help remove pollutants from vehicle exhaust.

Meanwhile, the US dollar (UUP) continues to be one of the most important determinants of any changes in the price of precious metals. It has also played a crucial role in the fluctuation of platinum-group metals like platinum and palladium.

The Gold-Platinum Ratio: Mapping Movement

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If we compare the price performances of gold and platinum via the gold-platinum ratio, we can see that the prices of gold and platinum were $1,231 and $1,007.8 per ounce, respectively, as of March 7, 2017.

The above graph shows the performance of gold compared to platinum through the gold-platinum ratio (also referred to as the gold-platinum spread). The spread measures the number of platinum ounces it takes to buy an ounce of gold. The higher the ratio, the weaker platinum is compared to gold, because more ounces of platinum are needed to buy a single ounce of gold.

RSI levels

The gold-platinum spread was ~1.26 on March 7, 2017. Gold-platinum spread’s RSI (relative strength index) was 68. Remember, an RSI level above 70 indicates that an asset has been overbought and could fall. An RSI below 30 indicates that an asset has been oversold and could rise.

Notably, fluctuations for these precious metals are closely reflected in funds like the ETFS Physical Platinum (PPLT) and the SPDR Gold Shares (GLD). Specific precious metal mining companies that fell in the past month due to the rebound in precious metal include Agnico-Eagle Mines (AEM), Coeur Mining (CDE), Alamos Gold (AGI), and Primero Mining (PPP).

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