Since 2005, platinum prices have roughly doubled compared with gains of about 20% for the broader stock market. Not bad… though gold bugs will be quick to point out gold has seen a four-fold rise in the same period of time.
So gold is better, right? Maybe not.
You see, gold and platinum have a lot in common. They’re both precious metals with a high per-ounce value. Right now, platinum is trading at about the same levels as gold — a little north of $1,700.
But historically, platinum trades for significantly more. Thus, the current parity may signal a value buy due to this factor alone.
The average ratio of platinum to gold prices has been largely between 1 and 1.5 for the past few decades, with a rough average of around 1.25 to 1.35. That means platinum has typically sold for around 25% to 35% more than gold. There are regular fluctuations, of course, but any large deviation from this benchmark tends to result in a sharp correction back to the norm soon afterward (see charts).
So, if you think gold is going to rise, consider platinum, too. If the historic ratio corrects itself, platinum’s gains could be significantly higher than gold’s. In fact, if you believe in this 1.25 to 1.50 ratio, even if gold remains flat, platinum has a 25% to 50% upside from here!
(Read a more in-depth analysis of platinum-to-gold ratios here)
So how do you invest? Well, as with gold and silver, platinum also has ETFs like the ETFS Physical Platinum Shares (NYSEARCA:PPLT) that move in lockstep with the metal. It’s up over 20% in 2012. There are few pure platinum miners, but they tend to be illiquid and trade OTC, such as the South African Anglo Platinum Limited (PINK:AGPPY). They can have attractive returns — Anglo Platinum is also up about 20% year-to-date. But buyer beware: These smaller stocks can really be volatile.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.