The Gold:Platinum Ratio And The Near-Term Direction Of The Stock Market

The ratio of gold’s price to platinum’s price, i.e., the gold:platinum ratio (GPR), has been impressively correlated with the stock market’s subsequent performance. The stock market performs poorly when the ratio declines and does well when it advances so what is the GPR currently saying about the future of the stock market?

The GPR is a good stock market predictor because:

• platinum primarily reflects industrial demand, while
• gold’s price reflects both industrial demand as well as investor demand for a hedge against economic and geopolitical trouble.

As illustrated in the two charts below:

1. the GPR went UP 137% between late 2008 and late 2009 while
   • the Dow went DOWN 53% during the same period of time.    
2. the GPR went UP 57% between early January, 2020, and mid-March, 2020, while
   • the Dow went DOWN 35% between early February and early March, 2020.
3. the GPR went DOWN 38% between mid-October, 2020, and mid-February, 2021, while
   • the Dow went UP 78% between mid-March, 2021 and yesterday (June 23rd, 2021).

• The GPR is UP 19% since mid-February BUT
  • the Dow is also UP 8.6% since mid-February

Conclusion

The Dow is currently holding up very well vis-à-vis the GPR suggesting that investors, collectively, are still bullish on the prospects for the Dow. It must be kept in mind, however, that there is a time lag between when the GPR peaks and the Dow bottoms so this dynamic should be closely watched in the month ahead.