It’s true – and crazy – that gold trades for about $1,500 today, and platinum sells for less than $1,000 an ounce.
We’ve never seen platinum trade for such an extreme discount relative to gold, as I explained last week.
This has created a huge opportunity. For platinum to trade at its historic average, it would need to rocket above $2,000 per ounce – for a gain of more than 100% (with no move in the price of gold).
Platinum is simply dirt-cheap compared with gold. But the story gets even crazier…
You see, most investors think about platinum all wrong. But by looking at the metal the right way, we’ll see that there’s another reason why a platinum boom is nearly certain.
Let me explain…
You might not realize it, but platinum isn’t exactly a precious metal. And it’s not fair to just compare it with gold.
Gold might be the champion of precious metals. But it’s also boring.
The metal has very few uses. You can make it into jewelry or dental fillings. It has limited uses in electronics too, since it’s a great conductor. But that’s about it.
The majority of gold’s demand comes from investors. Platinum is a different story. Not only is it rarer than gold… it actually gets used.
Platinum has played an important role in industry for a long time. Specifically, it’s used in cars for catalytic converters. Its role there is to help capture unburnt – and dangerous – hydrocarbons. In other words, if you want a cleaner car, truck, or boat, you need platinum.
These industrial uses make platinum a bit of a “tweener”… It’s part precious metal and part typical commodity.
To see what I mean, just take a look at the metal compared with a major commodity index…
You can see that what happens in the commodity market is important to platinum. When commodities in general fall, platinum struggles.
When you back-test the idea that platinum is half precious metal and half commodity, the results are surprising. The relationship is an excellent match over decades.
Even more important, looking at platinum this way shows us that the metal isn’t just dirt-cheap compared with gold. It’s dirt-cheap – period.
Take a look…
Here we see platinum compared with an index that’s simply 50% gold and 50% commodities. As you’ll notice, this index has tracked the price of platinum incredibly well – until recently.
At the far right of the chart, you can see that platinum has fallen below fair value by this measure. The price of platinum is not keeping pace with the index that has historically described it best.
We know that platinum isn’t only cheap relative to gold. It’s also cheap compared with this 50-50 gold-commodities index. And that’s huge.
It tells us platinum is a fantastic deal right now… no matter how you look at it.
So if you’re excited about gold, that’s fine. I expect the metal will do well in the coming years. But don’t miss out on platinum right now.
Thanks to today’s extreme undervaluation, platinum’s upside is even better than gold’s.
Good investing,
Steve
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Source: Daily Wealth