What gold and platinum are telling us about the stock market's direction

By Mark Hulbert

The gold-platinum ratio has one of the best historical records predicting the stock market's subsequent 12-month return

The gold-platinum ratio is roughly the same as it was a year ago.

The stock market will face stiff headwinds over the next 12 months, according to an obscure indicator with an enviable track record.

I'm referring to the ratio of gold's price (GC00) to platinum's (PL00). According to a peer-reviewed study published in a top finance journal several years ago, entitled "Gold, platinum and expected stock returns," the ratio "outperforms nearly all existing return predictors" when forecasting the market's direction over the subsequent 12 months.

The ratio works, according to the study's authors, because gold and platinum react to different factors. Platinum's value derives primarily from industrial uses and therefore is a proxy for economic activity, while gold proxies not only for that activity but also for geopolitical uncertainty. A higher ratio therefore means that geopolitical risk is higher, and in turn that the stock market's expected future return will also need to be higher as compensation for the additional uncertainty and risk that investors must incur.

(Note that the implication of this argument is that, when the gold-platinum ratio is rising, the stock market will be performing less well than what it otherwise would have. The ratio is therefore inversely correlated with contemporaneous changes in the stock market, and positively correlated with subsequent changes.)

The gold-platinum ratio from 2021-2026.

When I wrote about this indicator nearly one year ago, the ratio had fallen by nearly half over the prior 12 months - and, consequently, painted a bearish picture. Some of you questioned that interpretation, however, wondering if it might have been caused by unrelated factors such as supply disruptions. A year later that possibility seems less likely, since the past 12 months presumably have been a long-enough period in which any shorter-term pricing idiosyncrasies would have been resolved. The ratio's level today is essentially the same as it was 12 months ago, as you can see from the above chart.

That being said, however, there's no denying that the ratio's year-ago bearishness was wrong. The weight you put on the indicator therefore depends on whether you believe that the ratio has stopped working.

Though it's impossible to know in advance whether this (or any indicator, for that matter) has only temporarily stopped working, you should know that it has been largely accurate since the study was published. That's crucial, since it means that the ratio has worked out of sample - a statistical gold standard. As you can see from the above chart, the ratio turned upward soon after the COVID bear market and continued higher for several years - correctly anticipating the strong bull market that ensued.

The gold-platinum ratio therefore appears to be yet another shot across the bow of the bull market.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert

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10-27-26 1630ET