Platinum: The Other Gold

Includes: FTAG
by: Chris Horlacher

These days there's so much interest in gold and silver it can be easy to forget that there are a number of other precious metals out there that investors should be considering for their portfolios. While gold and silver should form the core of any metals portfolio, there's at least one other metal that merits serious attention and that is platinum.

You may have caught the odd story in the news where they reported a string of robberies where the thieves sawed off a car's catalytic converter. The reason for such interest in such an innocuous piece of emissions reduction equipment is because these devices are packed with platinum. You see, one of platinum's primary uses in industry is as a catalyst for certain chemical reactions. Without platinum, a catalytic converter would not be able to transmute certain noxious gases coming from your engine in to more mundane substances with little environmental impacts. Any thief with a hacksaw and a couple of uninterrupted minutes can reap as much as $400 in profit.

As the following chart shows, platinum's rise has paralleled nicely with gold's:

Platinum and Gold gains

Similar to silver, platinum is an industrial metal, with about 50% of each year's production going to the automotive sector. As a result, the metal's volatility is more in line with silver than gold as well. This is apparent considering platinum's much more violent drop in late 2008 vs. gold's. This was preceded by a massive spike from $1,400/oz to $2,200/oz in the same year. It has since resumed its upward trajectory. While gold is making all-time highs, platinum is likely to retrace its steps back up to $2,200/oz and that means some serious profits for investors as platinum currently rests at about $1,600/oz.

Just as we examine the gold/silver ratio when determining whether to buy gold or silver, we can also look at the platinum/gold ratio to determine whether to buy platinum or gold. Platinum has seldom been this cheap compared to gold:

Platinum/Gold Ratio

Presently, platinum is about 95% of gold's price. As you can see in the chart above, anything less than a 1:1 ratio makes platinum very "cheap" when compared to gold. Based on current market conditions, this is an ideal time for investors to start adding platinum to their portfolios, or start building a position. As the gold price continues to rise in the years ahead, the potential gains in platinum are likely to be even more spectacular.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.