Out of all the precious metals, none have been as exalted in the modern age as platinum. For more than a century this most desirable of precious metals has been coveted by people as diverse as Hollywood movie starlets and titans of industry. Incredibly rare, this dense, chemically-stable, gray-white metal has an occurrence of only 0.003 parts per million in the earth’s crust. Platinum is so rare, in fact, that its annual mine production is less than 1/15th that of gold.
Platinum has been used in fine jewelry, luxury watches and high-end objects d’art for well over a century. And yet, shockingly, platinum used to be considered a junk metal. This, along with many other interesting tidbits, is reflected in the historical record of the platinum gold ratio. The platinum gold ratio expresses the value of a single troy ounce of platinum in terms of gold and is often used by precious metal investors to gauge relative value between the precious metals. A high ratio means that platinum is expensive compared to gold, while a low ratio means that platinum is cheap in relation to gold.
The chart above shows the platinum gold ratio from 1880 through 2016. By closely examining the graph, there are a few important observations we can make. For example, the platinum gold ratio has been extremely volatile. Over the past 135 years it has been as low as 0.05 in 1885 and as high as 6.63 in 1968. However, within the last 40 years, the ratio has traded in a far more constrained range, generally hovering between 0.8 and 2.0.
Although it may seem odd to us today, the platinum gold ratio was extremely low in the late 19th century. This was because the relationship between platinum and gold was fundamentally different before the 20th century. Before 1900, platinum was something of a scientific oddity while gold was universally considered money.
In pre-modern times, platinum had been used by various pre-Columbian South American civilizations. Later, Spanish explorers panning for gold in South American alluvial deposits were perplexed by the strange white metal and, believing it to be immature gold, often threw it back into the streambeds so that it could “ripen”. Although platinum was first officially noted by the Italian scholar Julius Caesar Scaliger in 1557, it languished unappreciated for centuries due to its extremely high melting point (1,768.3° C or 3,214.9° F) which made it very difficult to fabricate.
But people did try to find uses for the enigmatic metal. Foremost among these was employing platinum to counterfeit gold coins! Because many nations were on the gold standard in the 19th century, gold coins circulated freely. At this time platinum traded for just a fraction of the value of gold, as evidenced by the extremely low 19th century platinum gold ratio. However, platinum (21.45 gm/cm3) happens to possess a similar density to gold (19.3 gm/cm3). This made platinum the perfect metal to counterfeit gold coins during the 19th century. Today, these contemporary platinum counterfeits are quite rare, and usually command higher prices than genuine gold coins of the time!
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The 19th century Russian Czars took this trend one step further and actually introduced platinum coinage for general circulation. In the early to mid 1800s, large quantities of platinum-alloy nuggets were recovered from alluvial deposits in the Ural Mountains. The Russian Czars hoped to take advantage of this by turning the unusual metal into coins.
Between 1828 and 1845, Russia struck a series of circulating platinum-alloy coins in 3, 6 and 12 ruble denominations. Unfortunately, the Russian people, having no familiarity with platinum, rejected the unusual platinum coins wholesale. Relatively few coins were struck and specimens command exorbitantly high prices today when they come up for sale.
It was only around 1900 that the technology to easily work platinum was first developed. It arrived in the form of the super-hot, oxy-hydrogen melting torch. Only an oxygen-enriched hydrogen stream burned at a hot enough temperature to melt the recalcitrant metal. This invention finally democratized platinum, allowing the gray-white precious metal to be worked by jewelers and other craftsmen.
As a direct consequence of this development, demand for platinum in high end jewelry skyrocketed. Platinum was perfect for the application. The metal was chemically inert; it neither tarnished nor corroded. In addition, platinum is harder than gold, giving it better wear characteristics.
The gray-white precious metal is also extremely strong, which was a boon to early 20th century Edwardian and Art Deco jewelry designers. Jewelers used platinum to create fabulously complex pieces using platinum wire, sheet and gauze that would have been impossible with traditional gold or silver-topped gold alloys. The fashion for “white look” jewelry reached its apogee during the Art Deco period of the 1920s, when platinum was de rigueur.
At the same time that jewelry demand for platinum was taking off, the industrial applications of the metal were becoming apparent as well. Platinum is an excellent chemical catalyst and was instrumental in the growth of the fledgling oil and chemical industries. The scientific community also adopted platinum for crucibles, electrodes and thermocouples due to its durability, resistance to corrosion and high melting point.
These fresh sources of demand drove the platinum gold ratio to elevated levels above 2.0 from the 1910s through the 1920s. However, with the advent of the Great Depression both industrial and jewelry demand for platinum collapsed. As a result, the platinum gold ratio declined until it hovered close to parity from the 1930s until the end of World War II.
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In the aftermath of World War II, global economic growth accelerated again, underpinning demand for platinum. During this time it was also discovered that platinum could be used in catalytic converters to reduce pollution from automobile exhaust. Robust demand for the unique industrial metal sustained the platinum gold ratio between 2.0 and 3.0 from the late 1940s until the early 1970s.
The highest annual value recorded for the platinum gold ratio was a spike to 6.63 in 1968. This was undoubtedly the result of attempts by the U.S. and Western European central banks to suppress the gold price in the 1960s via the London Gold Pool, while the platinum price was free to rise in the highly inflationary environment of the time.
The platinum gold ratio then flat-lined around parity from the mid 1970s until the late 1990s, as both precious metals endured brutal bear markets after 1980. Starting in 2000, rising industrial demand for platinum, coupled with stagnate gold demand, combined to elevate the platinum gold ratio until the Great Recession hit the global economy in 2008.
Since that time the platinum gold ratio has collapsed below 1.0, reflecting sluggish demand for the industrially-oriented white metal. In contrast, gold has enjoyed a safe haven bid as a monetary metal in recent years, propelling it to a higher value than platinum for the first time on a sustained basis since the mid 1980s.
Today, during the fall of 2017, the platinum gold ratio is lingering around 0.72. This is an exceptionally low value, historically speaking. In fact, ratios this persistently low were last seen in the late 19th century, before platinum’s unique usefulness was fully realized! Although no one can predict the future, I suspect that platinum bullion is a better long-term buy right now than gold bullion, where you have to mind the stairs.
