Last year I did the unthinkable and combined technical analysis with “fundamentals” to back a trade that ended up working out pretty well.  The trade was long bullion.

Here was my methodology, which involved little in the way of “homework” and more in the way of speed mortaring and pestleling on the kitchen table with my balls out, if I may borrow a turn of phrase from Senor.

Platinum is ~30x more rare than Gold, but is used much more in the production of catalytic converters and other nonsense for moribund industries.  Platinum doesn’t provide the same “fiat comfort” as gold, but is a precious metal nonetheless. Logically, regardless of supply/demand bottlenecks, or whatever other metrics you might study to get a broader picture or price/usage trends, platinum should have a premium to gold.  Using fancy software, you can see this dymanic in a ratio chart between the two metals.

The way this ratio works for you effin tards is:

1.) both prices move up - ratio lower [Plat:Gold = 2,000:1,000 = 2 ---> 2500: 1500 = 1.66]

2.) both prices move lower - ratio higher [2,000:1,000 = 2 ---> 1500: 800 = 1.875]

2.) gold up, plat down - ratio lower [2,000:1,000 = 2 ---> 1500: 1200 = 1.25]

3.) plat up, gold down - ratio higher [2,000:1,000 = 2 ---> 2500: 800 = 3.125]

There’s other combos such as up/flat, etc, but hopefully I don’t need to go there.

Long term you can see that is is very unusual for the two to have less than a 1:1 ratio, and that 1.6x is an ideal sell plat/long gold point

source

Back in the early 90s was the last time the ratio was as low as it was at the end of October, so, when the world was ending, I went to my local coin store and bought a pocketful of platinum coins, and a couple goldies, figuring, among other things, hey, either the world ends and these coins will buy me some loaves of bread and a scrap of bison meat in our martial law economy, or we’ll get bailed out via inflation and these metals will have to rise.  Or I’ll go long something since at the time it was short everything.

The ratio analysis can go to shit, however, if you decided to sell short platinum and go long gold in 1979 before both metals super spiked (although since hedged it would be more or a push), moving the ratio to those historic lows (note that is still produced a valid buy in 81/82).  To ameliorate this, I would simply wait for trend confirmation (on the short side only, long appears to work consistently) before playing the ratio.  More recently, there seems to be an arbitrage theme going as people will sell one and buy the other, so them moving is tandem is *less* likely perhaps.

Anyway, I’m stuck with these stupid coins and egregious gains.  Now what?  The whole situation is rather illiquid for my taste.  If I go back to the coin dealer, his vig is spot minus 10-15%, which eats into my gains.

Solution?

Ebay.

To remind you, the current spot is $1,551 (1/25/10)

• Ebay auction $2,110, 11 bids
• Price $1700, 2 bids
• $1575, 11 bids

Yes.  Except now, instead of arbitraging, I am brokering.  People will pay a 0-30% premium for the “honour” of getting their coin right away, instead of dealing with the wait, and they figure, “who cares, I’d have to pay the vig AND wait anyhow.”

The wait?

Yes, there is a dearth of available coins for the ham and eggers who desire them.  If you call kitco, for instance, they will take your money and then attempt to find you a coin.  If they can’t find it in six months, they return your money.  In effect, it was an interest free loan for them, or you’re waiting for a locate.  If someone with more experience than I can tell me this isn’t how it works fine, but to my knowledge this is how those big online coin houses work.

So that’s what I did, and what I’m doing.  I’m selling the coins piecemeal, the trend is still up, but the ratio is close enough to 1.6 that taking partial profits seems prudent.