Is Platinum Overvalued?


". . .platinum, like gold and silver, can never become worthless."

I like round numbers because they are easier to count. For example, on 14 July 2009 I recommended buying platinum at $1,118 and today it trades at $1,618. I like an unrealized gain of $500 per ounce, or 23.1%, in 6 months. But is platinum overvalued and how can we tell whether we should buy more, hold or sell?

Technical Analysis

In July 2009 the platinum to gold ratio was below 1.2 and currently it is around 1.41. The extrinsic value of platinum has risen about 17.5%, when priced in FRN$ about 45% and when compared to the earlier upleg in April platinum is looking pretty expensive. But as Professor Jastram explained in The Golden Constant all commodities tend to return to orbit around gold. So where is platinum’s natural orbit?

The natural orbit for platinum is around 1.8–2.1 ounces of gold per ounce of platinum. But this is just a cursory technical analysis. To be sure, an analysis of the fundamentals under the Austrian school of economics is also important to undertake.

Platinum has had a tremendous run over the past 6 months. Platinum is not nearly the incredible value today as it was then and the 50dma and 200dma are not at strategic entry points. Nevertheless, it is a prime substitute for little colored coupons, goes into the cash portion of the balance sheet, is easily purchased with low margins, is extremely rare relative to the other precious metals, has bright demand prospects and still appears to be undervalued relative to gold by about .4–.7 ounces of gold per ounce of platinum.

So I recommend accumulating fully paid for physical metal on a consistent regular basis. While I have not exchanged my gold or silver for platinum, largely because of tax considerations, I have shunted most of my gold and silver demand into allocated physical platinum. After all, platinum, like gold and silver, can never become worthless.

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