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Where Is the Gold-Platinum Spread Headed?

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Gold-platinum ratio

Precious metals have had a successful 2016 due to the Brexit vote in June that shook the world. Global concerns kept piling up while haven bids for these store-of-value assets rose, leading to rising prices.

However, the performance of platinum compared to other precious metals has been falling in the past few months. The graph below shows the performance of gold compared to platinum by way of the gold-platinum spread, or the gold-platinum ratio. The spread measures the number of platinum ounces it takes to buy a single 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.

The ratio rose sharply after July 2016. Platinum has seen a year-to-date (or YTD) rise of 6.3%, while gold has seen a YTD rise of 19.2%. In the past 30 trading days, gold has fallen 5.4%, and platinum has fallen 10.1%.

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Spread movements

The gold-platinum spread has seen its ups and downs over the past few months. But the United Kingdom’s Brexit vote resulted in some strength for platinum, which was evident in falling cross-commodity rates. Once again, however, gold is overtaking platinum, increasing the spread.

RSI levels

The gold-platinum spread was ~1.3 on October 24, 2016. Its RSI (relative strength index) was 69.4. An RSI level above 70 indicates that an asset has been overbought and could fall. An RSI level below 30 indicates that an asset has been oversold and could rise.

Fluctuations in these precious metals are closely reflected in funds such as the ETFS Physical Platinum (PPLT) and the SPDR Gold Shares (GLD). The precious metals mining companies that fell in the past month include Buenaventura Mining (BVN), Goldcorp (GG), Barrick Gold (ABX), and Anglogold Ashanti (AU).

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