A Simple Strategy to Buy Gold for Less Than $1000

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Published: Jul 31, 2019, 08:53 GMT+00:00

To be clear, I don't think gold is going to drop below $1000. On the contrary, the recent breakout above $1400 signaled the onset of a new bull market that will likely last well into the next decade.

What I’m about to describe is a simple ratio play that takes advantage of temporary imbalances in the metal’s markets.

The plan is straightforward: Buy physical platinum at these levels and wait for prices to return to parity with gold. When prices reach parity, sell or trade the platinum in for gold.

Drawbacks to this strategy: It’s a long-term strategy and may take a few years to realize. What if platinum never returns to parity with gold? I suppose that’s possible but unlikely given the historical variations in these markets.

The four primary metals for investment are gold, silver, platinum, and palladium. Each is rare and has its advantages. At times, market forces will favor one metal over the others, and prices will reach extremes. Take palladium for example, during the 2008 financial crisis prices slipped to $160 when gold was at $680. Now palladium is trading at $1550 and above the price of gold.

A more notable example is platinum. Over the last 40-years, platinum has traded at a premium to gold about 85% of the time. In fact, in 2001, 2004 and 2008 platinum was more than double that of the price of gold. See platinum/gold ratio chart below.

PLATINUM/GOLD RATIO CHART

The platinum to gold ratio fluctuates greatly. It ranges from over 2.0 to the recent record low of 0.579 set in June 2019. It could go lower yet, but the probabilities favor an eventual mean reversion where platinum returns to at least parity or better with the price of gold.

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WEEKLY PLATINUM CHART

The weekly platinum chart is working on a bullish trend reversal. Prices have formed a series of higher lows since bottoming at $755 in August of last year. A sustained rally above $920 would support a breakout and complete the trend reversal.

With platinum currently trading at $875 and gold at $1440, I think it’s just a matter of time before savvy investors take advantage of this price disparity. Especially since gold just broke free of its 6-year base.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit https://goldpredict.com/

About the Author

AG Thorsoncontributor

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle that will begin to unravel in 2020.