By Mark Hulbert
The gold-platinum ratio suggests the stock market is living on borrowed time
The U.S. stock market's prospects continue to deteriorate, according to the gold-platinum ratio - a relatively obscure indicator with an impressive track record predicting the stock market's 12-month return.
I say &#34;continue&#34; because the ratio of gold (GC00) to platinum (PL00) was already declining when I last wrote about it in November. As you can see from the accompanying chart, the ratio has declined since then. That doesn't bode well for the S&amp;P 500 SPX.
The market-timing potential of the gold-platinum ratio was first reported in the Journal of Financial Economics in a study entitled &#34;Gold, platinum and expected stock returns.&#34; The authors found that the ratio &#34;outperforms nearly all existing return predictors&#34; when predicting the stock market's return over the subsequent 12 months.
The researchers based this conclusion after analyzing data from 1975 to 2013. The accompanying chart, reflecting data since 2014, constitutes an out-of-sample test of their conclusion. Though the ratio isn't a perfect predictor of the stock market's subsequent 12-month return, it has done a creditable job since 2014. It did particularly well navigating the COVID-19-induced bear market in 2020 and subsequent recovery, for example.
The reasons that the gold-platinum ratio is a good market-timing indicator, according to the study, are that the two metals respond to different factors. While both are correlated with the economy, gold - but not platinum - also reflects geopolitical risk and uncertainty. A rising ratio means that geopolitical risk is growing, and when that happens, stock investors will demand a higher expected return to compensate them for that risk. That causes the stock market to fall as the ratio is rising, but to have higher returns in subsequent months.
To put the researchers' argument another way, as a coincident indicator, the ratio is inversely correlated with the stock market. But as a leading indicator, it is positively correlated.
You may have a hard time believing that the gold-platinum ratio is falling because geopolitical risk is receding. But this narrative is not as far-fetched as it otherwise might appear. Consider a geopolitical risk index (GPR) created by Federal Reserve economists Dario Caldara and Matteo Iacoviello. It's a news-based index that measures &#34;the threat, realization and escalation of adverse events associated with wars, terrorism and any tensions among states and political actors that affect the peaceful course of international relations.&#34;
Though the GPR is quite volatile on a day-to-day basis, in mid-April it dipped to less than half of its early-March high - and less than a third of its 2025 high last June.
Note that the gold-platinum ratio sheds little light on the stock market's performance over the next month or two. So even if the market is lower in 12 months, the ratio tells us nothing about the path it took to get there. But it's hard to overlook the ratio's decline began almost 12 months ago, which suggests that the stock market may be living on borrowed time.
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
More: Former Treasury Secretary Henry Paulson warns U.S. needs an emergency 'break-the-glass' plan if Treasury demand collapses
Plus: Tesla, IBM and Intel report earnings next week. Here's the best way to play a volatile market.
-Mark Hulbert
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
04-18-26 1505ET

600547

600489

The gold-platinum ratio indicates that the U.S. stock market may be facing a correction, as it has been declining since November. This ratio, which has a strong track record in predicting stock market returns, suggests that geopolitical risks are rising, leading to lower expected returns for investors. Although the ratio does not predict short-term market movements, its decline over the past year raises concerns about the market's stability. Mark Hulbert, a contributor to MarketWatch, emphasizes the importance of this indicator in assessing market conditions.

Dow Jones

Agnico Eagle Mines

SD-GOLD

ZHONGJIN GOLD

Kinross Gold

iShares Gold Trust

Pro Ultr GLD

VanEck Gold Miners ETF

Us Gbl GLD & Met

GraniteShares Platinum Trust

Sprott JR Gold Miners ETF

Sprott Active Gold & Silver Miners ETF

ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF

Direxion Daily Gold Miners Bear 2X

YieldMax Gold Miners Opt Inc Strgy ETF

iShares MSCI Global Gold Miners

Sprott GLD Miners Etf

EFUND GOLD MI ETF

ChinaAMC Gold ETF

Abrdn Gold ETF Trust

Abrdn Platinum ETF Trust

Microsectors Gold Miners 3x Leveraged ETN

VanEck Junior Gold Miners ETF

SPDR S&P Mtls & Mng

Roundhill Gold Miners Weeklypay ETF

Invesco Db Precious Metals ETF

Direxion Daily Jr Gold Miners Bull 2X

SPDR Gold Shares

Direxion Daily Gold Miners Bull 2X

GLOBAL X Gold Explorers

Abrdn Precious Metals Basket ETF Trust

S&P 500

Tesla

Intel

Think the rally is safe? This elite market-timing indicator says a correction is overdue.