Gold:Platinum And Gold:Palladium Ratios Hit 1.5 Year Low

by: Adam Rabie

Gold and silver are falling at the same time as platinum and palladium are making intermediate highs. This is driving the ratio of gold to platinum and gold to palladium to levels not seen for over one year:

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Investors are used to platinum prices historically being higher than gold so the present situation seems to be restoring the norm.

What is Driving Platinum Prices?

Platinum prices have been boosted by increased demand for automobiles:

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Diesel engine vehicles provide about half the demand for the metal, as they require platinum rich devices to control emissions, and are often found in capital machinery as well. Today we saw crude material prices rise 0.8% in the Producer Price Index (PPI) release this morning, corroborating the bullish trend for industrial metals.

Outlook for Platinum

Given the cyclical forces reflating much of the durable good bubbles of 2002-2008, demand for cyclical metals like platinum and palladium are set to perform well if the economy holds up.

Recently, however, weak auto sales reports from Europe showing a -%9 decline for early 2013 and rising US interest rates and budgetary mania are threatening to dampen the platinum party.

To play platinum, the ETFS Platinum Trust ETF (PPLT) is the most popular exchange traded mechanism. The Palladium alternative from the same provider is the Palladium Trust ETF (PALL).

Outlook for Gold

Despite gold performing poorly, hitting a six month low today alone, prices are poised to do well. A weakening economy in Europe and the U.S. will hurt the cyclical commodities more so, while gold benefits from the Federal Reserve and Fiscal authorities actions to try offset the effects.

The rise in U.S. interest rates is a forward indicator that the Fed must do more. The Fed's next meeting on March 20th is a good target of when gold prices might turn. The Fed will use rising interest rates, high unemployment, and lack of capacity utilization as justification for continuing or increasing stimulus measures which some still oddly doubt will remain.

To play long gold, I usually like the short the short, so I borrow shares directly or buy puts, which I prefer given the low implied volatility, of ProShares UltraShort Gold (NYSEARCA:GLL) or PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ). Traditional ways of going long can be done through the largest gold ETF (NYSEARCA:GLD) or you can double long with ProShares Ultra Gold (NYSEARCA:UGL).

Disclosure: I am short GLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.