Friday, April 10, 2015
There's a rare extreme in the precious-metals sector right now...
And it's creating a great opportunity for investors to make a lot of money.
Let me explain...
A few weeks ago, my colleague Brian Weepie told you why platinum prices are likely to break out this year. Platinum production has been falling while demand has been increasing. Brian said more demand than supply will drive prices higher. He was right.
The price of platinum is up more than 5% since it bottomed on March 17 at $1,099 per ounce. But the rally is just getting started.
You see, despite the recent uptick in the price, there's still an extreme situation in the platinum sector right now... Platinum is cheaper than gold. This is extremely rare. Over the past 35 years, gold has been more valuable than platinum during only five other periods.
You can see this by looking at the gold-to-platinum ratio. When the ratio is above 1, gold is more expensive than platinum. Take a look...
Whenever this ratio has gotten out of whack in the past, platinum prices have soared soon after to return the ratio to normal. Take a look...
The arrows show the points when the ratio got out of whack over the past 35 years. Platinum prices soared at least double–digit percentages after each of those times. The average gain was 54% over just seven months. The table below shows the full details...
As I said, the gold-to-platinum ratio is at an extreme again today... Platinum is trading around a 5% discount to gold right now.
For the ratio to return to normal, either gold prices will have to fall or platinum prices will have to rise.
I'm betting the latter will happen.
As Brian showed you last month, demand for platinum is increasing. The metal has industrial applications in electronics, automobiles, dentistry, and jewelry. Increasing demand – coupled with a big production drop last year – has caused us to use 1.8 million more ounces of platinum than we produced and recycled over the past four years.
This supply/demand imbalance is already causing platinum prices to rise. And it should continue to drive prices higher.
If you don't already own platinum, I recommend buying some today. It's cheap and in demand. And based on history, we could see double-digit gains over the next year as the gold-to-platinum ratio returns to normal.
The easiest way to buy platinum is through an exchange-traded fund (ETF). The table below shows the four main platinum ETFs with their net asset value (how much money is invested in the fund), their expense ratios (how much is charged to run the fund each year), and what type of fund it is (if the fund holds physical metal or futures contracts). For example, PPLT holds $588 million in physical platinum and it charges investors 0.60% in fees each year.
I prefer larger funds that hold the physical metal – like PPLT and SPPP – because futures funds incur extra costs as old futures contracts expire and new ones are bought. You can also sometimes run into the problem of contango (when a fund pays more for a futures contract than you can buy the commodity for today). When this happens, a fund will lose money until the market reverses.
No matter how you do it, I urge you to consider buying platinum today. We'll likely see at least double-digit gains over the next year.
Brian Weepie says another commodity is also breaking out right now – uranium. "But one of the world's leading uranium producers hasn't benefited from the rally so far," he writes. "And it could be a great opportunity for speculative investors." Get all the details here.
Before you invest in natural resources, this classic interview with master resource investor Rick Rule is a must-read. In it, he reveals everything you need to know to master the resource market's cyclicality. If you catch one of these big cycles at the wrong time, you can lose a fortune. But if you catch one early, you may never have to work again...
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