Silver And Platinum: The Giant Rebound
London (Apr 18) In late February and early March, the prices of silver and platinum were higher on the year, but their values vis a vis the price of gold decreased dramatically. There is a huge difference between price and value. Price is the metric that we see on the screen each day. While price is an important factor in the future direction of any asset, determining value is a way of looking under the hood to diagnose the current environment and locate clues as to the future path of least resistance for prices.
The divergences between silver, platinum and the price of gold have been stark for many months. Over a 40-year history silver, or "poor man's gold," has traded at a median value of 55 ounces of silver value in each ounce of gold value. Platinum, "rich man's gold," did not get that title by trading at a discount to the price of the yellow metal. Over more than four decades, platinum has traded at a median premium of $200 to the price of gold. However, bear market conditions in commodities commencing in 2011 when precious metals prices reached dizzying heights, created an environment where investment demand dried up. As such, the prices of all precious metals fell, but the most speculative and thinly traded metals did the worst.
Four years of the bear
The bear market in commodities since 2011 has taken the prices of agricultural commodities, energy, and metals to multi-year lows over recent months. Precious metals have been no exception.
The price of silver peaked in April 2011 at $49.82 per ounce.
In December 2015, the price of silver dropped to the lowest level since August 2009, when it traded to lows of $13.635 per ounce.
Platinum is less liquid than silver. While silver has a great history as a volatile trading sardine for speculators, platinum is an industrial precious metal that attracts investor and speculative interest with less frequency. One of the differences between the two metals is that there is a greater addressable market of speculators for silver than for platinum.
The price of platinum peaked in March 2008 at $2,308.80 per ounce. "Rich man's gold" plunged in the wake of the global financial crisis that year and moved to lows of $761.80 by October 2008 -- a decline of 67% in seven months. Platinum then began a three-year rally that took the price to a lower high of $1,918.50 per ounce in August 2011. Since then, the price has dropped, reaching lows of $812.20 in January 2016.
Gold, the ultimate precious metal, came out of the gate rallying in 2016.
Gold traded to all-time highs in September 2011, when it hit $1920.70 per ounce. Over the four years that followed, it made lower lows and lower highs, reaching a low of $1046.20 in December 2015. After closing 2015 at the $1060 level, gold has moved aggressively higher in 2016, and as the monthly chart illustrates, it has clearly outperformed its precious cousins, silver and platinum. However, there are some compelling indications that this is about the change, and the results could create wild volatility in the precious metals sector.