The stock market’s prospects for the next 12 months are only modestly positive.
That’s the conclusion of a market-timing model based on the ratio of gold’s price
GC00,
to platinum’s
PL00,
You might think it’s good news that equities’ 12-month potential is as promising now as it was in early 2021. But, in fact, most stocks have struggled since then. A relatively small number of large-cap stocks have propelled the S&P 500
SPX,
higher, and the Russell 2000 index
RUT,
is 9.2% lower than where it stood when my early-2021 column on this gold-platinum ratio was published. The Nasdaq Composite Index
COMP,
is just 1.8% higher while the Russell Micro-Cap Index is 14.7% lower. (Data, courtesy of FactSet, are through Mar. 28.)
The discovery of the gold-platinum ratio’s market-timing potential traces to a 2019 study in the Journal of Financial Economics. It showed that a rising gold-platinum ratio forecasts higher stock market returns over the subsequent 12 months, and vice versa. Entitled “Gold, Platinum and Expected Stock Returns,” its authors are Darien Huang, a former finance professor at Cornell University, and Mete Kilic, a finance professor at the University of Southern California.
The chart below plots this gold-platinum ratio over the last 20 years. Notice that the ratio declined for many years prior to and including the 2008 financial crisis, correctly predicting less upside potential for the stock market. Since 2008, in contrast, the ratio has for the most part steadily risen — as has the stock market.
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You can read this complete story at: https://www.marketwatch.com/story/why-gold-and-platinum-are-a-window-into-the-stock-markets-future-and-what-investors-can-expect-11648583926
