Spectacular gains in gold exchange traded funds have not been mirrored in platinum ETFs as gold spot prices begin to trade at par with platinum. The new price parity may forebode change in the global economy, analysts say.
SPDR Gold Shares (NYSEArca: GLD) is up 26.9% so far this year, compared with a 1.7% gain for ETFS Physical Platinum Shares (NYSEArca: PPLT).
“A gold price higher than platinum is very unusual since the mid-1990s, when platinum’s use in catalytic converters really took off for diesel engines,” commented Adrian Ash, head of research at BullionVault, reports Myra P. Saefong for MarketWatch. “Just like the under-performance of gold-mining equity in 2011, the low gold/platinum ratio points to economic weakness worldwide.”
Platinum prices fall on weaker economic activity since it is used in industrial purposes, James Turk, founder and chairman of GoldMoney, pointed out. Since gold is being used as an alternative to paper currency, “monetary problems tend to worsen when the gold prices rise above the platinum price,” Turk remarked.
The gold/platinum ratio broke below parity right after the financial crisis of 2008.
On Thursday, gold futures for December delivery touched $1,781.40 an ounce while October delivery for platinum ended $1,780.60 an ounce. Ash believes that the break below parity indicates “retained capital is choosing preservation over growth.”
Platinum has long held a high premium over gold prices as it is almost 30 times more rare than gold. However, “its price is more sensitive to fluctuations in output,” Edmond Bugos, director of mining finance at Strategic Metals Research & Capital, remarked. In contrast, gold “is driven by investment demand alone” because “so much of it [is]hoarded relative to annual mine output,” Bugos added.