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Reading the Gold Spread in Tandem with the Fed

PART:
1 2 3 4 5 6 7 8
Part 6
Reading the Gold Spread in Tandem with the Fed PART 6 OF 8

Understanding the Mid-June Gold-Platinum Spread

Platinum in diesel-based vehicles

While palladium is extensively used as a catalyst in gasoline-based cars, platinum is used in diesel-based engines. Market demand for diesel-based vehicles plays a major role in determining the fundamentals for platinum.

But while platinum is famous as a precious metal, it also has industrial uses and can thus closely react to overall market sentiment. Notably, platinum and palladium have surged 2.9% and 8.1%, respectively, over the past 30 trading days.

Understanding the Mid-June Gold-Platinum Spread

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The dollar is also influential in the price changes of platinum and has affected the fluctuations of platinum-group metals like platinum and palladium.

The gold-platinum spread

The demand for platinum has been weak over the past few years, and speculations about lower sales forecasts of diesel-based vehicles could further impact platinum. Platinum has fallen ~60% from its 2008 peak price.

When we analyze the platinum market, it’s crucial to check out the gold-platinum spread or ratio. The ratio is a measurement of the number of platinum ounces it takes to buy a single ounce of gold. The higher the ratio surges, the weaker platinum (PPLT) becomes as compared to gold (SGOL), because more ounces of platinum are needed to buy a single ounce of gold.

The gold-platinum spread was ~1.3 on June 12, 2017. The RSI level for gold-platinum spread is now 56.8.

Precious metal mining companies that rise and fall with these metals include New Gold (NGD), Sibanye Gold (SBGL), Gold Fields (GFI), and Harmony Gold (HMY).

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