Gold Is Overvalued Relative To Platinum Group Metals

Gold Is Overvalued Relative To Platinum Group Metals<br /><br />Arguments for GoldMany investors have flocked to gold, causing the price to skyrocket. Unfortunately, these prices cannot be justified because gold is a mostly useless precious metal whose lack of income defies valuation. Arguments supporting the value of gold easily tarnish:Gold is a great investment because it always goes up in value. No, it doesnt. This is a terrible mantra that did not hold true for Beanie Babies or for residential real estate. It also hasnt held true for gold: it spikes and drops.Gold is a great investment because it is an inflation hedge. There is no mechanism that forces this relationship. Investors seeking inflation hedges ought to consider inflation linked bonds, adjustable rate bonds, or taking a short or put position in bonds with high durations.There is increasing demand for gold in the real economy. Most gold jewelry is not pure gold but an alloy of gold and other metals. For example, 14 karat gold is 14 parts gold and 10 parts another metal. Moreover, there are convincing jewelry pieces which use gold plating or another metal altogether.Gold is valuable as a collectible. This is almost never discussed because it seems less economic than the other arguments. On the contrary, it is the best argument for gold as an investment. There is considerable history surrounding gold, which helps establish its psychological value. Gold bugs do not like thinking of precious metals as collectibles like works of art or sports memorabilia. Regardless of their sentiments, gold is similar to fine art in that it has been a part of history. However, recently minted coins or bars are fungible and the fact that they are interchangeable undermines their value. Many other collectibles are unique.Problems with Current Gold PricesThere are many indicators which make reveal how gold is overvalued at todays prices. Consider the following precious metals data from the January 26th, 2012: