Gold has reached its all time high in November 2012 in India. However, it has been on a decline since then. Recovery signs from US and the corresponding strength and growth shown by the equity markets ensured that the flow of money changed direction from gold to equity. As a result of the buoyant US markets, investors have started to favor stocks over the yellow metal.
Gold imports contribute significantly to the Current Account Deficit (CAD) of India. The world’s largest importer of gold is seeking new ways to inhibit gold imports and curb its CAD. India is also expected to increase cess on gold mining. This could potentially decrease the demand in India as well. Gold also recorded the least year on year return in 2012. All the signs showing the potential end of golden run of yellow metal. The sentiments of market recoveries are also riding high on investor’s minds. The capital markets are expected to see huge inflows in coming days. This in turn will weaken the gold in coming times.
The platinum to gold ratio is often perceived as one of the major economic indicator. Platinum is comparatively more rare metal than gold. Platinum is also more important metal when it comes to industrial usage terms. Platinum is generally traded at higher prices compared to gold during the conditions when economies are booming. But once there is instability on economic front, the odds are in favor of gold. Platinum’s industrial demand decreases during the economic slowdown. Investors find solace in the safe haven of gold during the same time when the markets stay volatile. This pushes the gold prices up and platinum to gold ratio is skewed towards gold. So platinum to gold ratio is an indicator of economic wellness.
The graph below shows the Platinum to gold ratio for last 5 years. The ratio was around 2.41 in May of 2008. Gold then started its rally and the ratio continued to decline. Gold dominated Platinum starting September 2011. Excluding a month in March of 2012, the ratio was skewed towards gold for most of the period. However Platinum showed signs of recovery during the last month of December and by mid of January 2013, the ratio is dominated by platinum prices. BY end of February 2013, the ratio is at 1.01. This indicates the strong sentiment and faith investors are showing in the equity markets recovery. Gold prices are expected to weaken in the coming days.