Platinum Versus Gold: Both Precious Metals But Which Is More Precious?
Gold and platinum are both precious metals. Both metals are rare and each possesses special unique qualities. Each year, there is roughly 2,800 tons of gold production while platinum production is around 250 tons. Platinum is a harder metal, therefore it has unique industrial applications. The majority of platinum production comes from two countries -- Russia and South Africa. Gold production comes from many more countries around the world. Gold is a financial commodity, individuals and governments hold gold, as many believe that it is the ultimate currency.
The price differential between gold and platinum is an inter-commodity spread. Over the course of history, there have been times when gold trades at a premium to platinum and times when platinum fetches a premium to gold. The monthly chart of the platinum-gold spread illustrates the history of the relationship between the two precious metals.
Since 1987, platinum usually trades at a higher price than gold. The average is around a $200 premium for platinum over the yellow metal. Perhaps this is because platinum is a rarer occurring metal. However, at times the spread between the two metals becomes volatile. In 2008, platinum traded to a modern day high premium to gold of $1,200 per ounce. In 2011 and 2012, gold traded to a modern day high premium of $200 over platinum. This was likely due to the events that followed the global economic meltdown of 2008.
Platinum, an industrial metal, fell as the global economy weakened.
Characteristics and Features
Each metal has different trading characteristics. Gold is an extremely liquid market. Each day buyers and sellers trade huge volumes of gold on world markets. Gold trades on a futures exchange -- the COMEX division of the Chicago Mercantile Exchange (CME). The COMEX gold futures contract is one of the most liquid commodity futures in the world.
On an average day in 2015, there are approximately 175,000 contracts of gold traded representing 17,500,000 million ounces of the metal worth around $20 billion at a price of $1165 per ounce on the COMEX futures market alone. Gold also trades on the over-the-counter market as well as in physical markets around the world. Platinum trades in over-the-counter and physical markets as well, the NYMEX division of the CME offers a platinum futures contract. That contract is less liquid than gold.
On an average day in 2015 approximately 15,000 contracts of platinum trades representing 750,000 ounces of the metal worth around $862.5 million at a price of $1150 per ounce. As you can see, gold is a more popular trading asset than platinum. At the same time, platinum is a key requirement in the production of catalytic converters so when automobile sales rise the demand for platinum increases thus causing its price to appreciate. Due to the fact that platinum is less liquid than gold -- the price of platinum can move violently, the metal is more susceptible to price spikes than gold is.
Both platinum and gold are precious metals and they tend to move in the same direction. The price differential between the two represents the supply and demand issues that affect the two metals independently. Understanding the price of platinum relative to the price of gold, the inter-commodity spread, can yield important clues as to current market sentiment. When divergences occur profitable trading or investing opportunities often arise. As the monthly chart of this relationship illustrates, the spread between the two metals may stay wide for extended periods but it tends to revert to the long-term average level for the spread.
One can make arguments on both sides as to which metal is more precious, but the price relationship between platinum and gold often answers that question at any point in time. When gold is more expensive than platinum the market tells us it is more precious and vice versa.