Gold Decouples: 4 Charts To Solve The Paradox

Gold bars,silver,copper,platinum,1000 grams pure metal,business investment and wealth concept.wealth ... More of commodity ,3d rendering Supply and demand form the basis of price – or at least, that’s what we’re taught first in economics. Soon after, we’re told that markets are near-perfect pricing mechanisms, so prices are generally “right,” unless the market has missed something. Can we take that as a given? You’d have to be quite the contrarian to believe otherwise to any significant extent. Still, there are exceptions to every rule, and investors are always hunting for such anomalies to profit from eventual returns to efficiency. Now let’s consider another foundational investment idea: precious metals should more or less move in sync. They should track—rising and falling in tandem. While their relative prices may shift, those changes typically show some continuity. Their “preciousness” drives this correlation more than their utility, and even if their use cases evolve, they should still generally move together over time. Here’s a chart of gold and silver, a classic pair: The gold chart with the silver price following closely Makes sense. Now take silver and platinum: ‘The Four Seasons’ Dethroned In Netflix’s Top 10 List By An Exceptional Show ‘NYT Mini’ Clues And Answers For Thursday, May 15 Google’s New Android Update — 3 Things Your Phone Can No Longer Do The silver chart with platinum recently becoming decoupled You can see the historical correlation – and also the recent decoupling. Now for the interesting part. Gold versus silver: the ratio is now around 100 to 1. Let’s round the numbers to keep it simple. Historically, the ratio was 5:1, then 10:1, 20:1, 40:1... and now 100:1. So is it all just about supply and demand? Annual gold production is around 3,200 tonnes, while silver production is approximately 25,000 tonnes – only 8 times greater. Yet gold is worth 100 times more. That discrepancy raises eyebrows. Many silver enthusiasts cite this to argue that silver is bound to “moon” eventually, catching up in value. So far, that hasn’t happened. You can see that platinum has tracked with silver – as expected – until 2024, when it broke away. Let’s now look at platinum versus gold. The two moved together in direction but not in value growth: The gold chart with platinum moving in the same direction but not growing in value Currently, platinum is priced at roughly $1,000 per ounce, while gold sits at around $3,000. Now here’s where things get interesting. Gold’s annual supply is 3,200 tonnes; platinum’s is just 180 tonnes. No, that’s not a typo – 180 tonnes. That means platinum has just 6% of the new supply of gold, effectively a rounding error on a global scale – yet it trades at only a third of gold’s price. (Side note: a platinum Rolex carries a 50% premium over a gold one, but that’s just more cognitive dissonance.) Global gold supply is robust; platinum’s is tiny. Judging by price alone, platinum appears extremely cheap. So here’s the dilemma: 1. Forget platinum – it’s obsolete. Gold reigns supreme. Or ... 2. Platinum is undervalued and due for a massive catch-up. You could make the same case for silver. With only 8 times the supply of gold, why is it priced at just 1%? A gold-to-silver ratio of 100:1 seems excessive. Maybe 50:1 is reasonable, or even 20:1 like in the old days – but 100:1 feels out of whack. Gold at 17 times the supply of platinum and just 3 times the price is unquestionably strange. Based on a supply-adjusted valuation, silver “should” be $400 an ounce and platinum around $56,000 an ounce. Of course, those numbers are fantastical and won’t be realized – but they highlight the massive underperformance of other precious metals relative to gold. Either silver and platinum are dramatically undervalued, or gold is drastically overvalued. If prices revert to the mean – whether through gold falling or the others rising – the moves could be dramatic. For precious metal bulls, this supports the case for higher silver and platinum prices down the line. One final thought: palladium. The palladium chart soared then crashed This chart says two things: yes, these commodities can soar – and yes, they can also crash like a quail shot mid-flight. I’m especially intrigued by the current “dead zone” in palladium. In my voodoo charting worldview, that screams “bottom.” If gold continues its upward path, the other precious metals are likely to follow. For that reason, I’m avoiding the wild volatility in equities and using gold, silver, platinum, and palladium as hedges. And don’t forget: diversification is your friend – even within the realm of precious metals.