I have posted this elsewhere on the internet, so some of you may have already seen this. The numbers in the examples are as of the end of January, but still apply as an illustration.

Assumptions:

1) Precious metals are not an investment; They are a store of value.

2) When the money supply increases, there is inflation

http://www.shadowstats.com/article/money-supply

3) During periods of inflation, the price of precious metals increase (on average) relative to the local paper currency.

Theory:

During times when the money supply is increasing, store wealth in precious metals

Problem:

If someone is going to store their wealth in precious metals, which one?

Should you diversify by storing your wealth across multiple types of precious metals?

My solution:

1) Diversify across Gold, Silver, Platinum, and Palladium

2) Each time I wish to convert more wealth to precious metals, use my analysis to determine which one is currently undervalued relative to the other three.

3) Each time I have need of paper currency, use my analysis to determine which one is currenly overvalued relative to the other three.

Analysis:

Data

Since many investment sites do not always have all the data I want, I created my own data tables. Every weekday, at lunch time eastern time, I record the spot prices of gold(G), silver(S), platinum(PL), and palladium(PA). The data table I use for my analysis covers 01/02/03 - current day.

Number crunching method one

I calculate the 200 day moving average (200DMA).

I divide the current spot price by the 200DMA.

Equation: Spot/200DMA

This allows for an easy comparison versus the local paper currency.

Similar to the method used in the link below, I value this answer like this:

1.1+ overvalued

0.95-1.1 average value

0.85-0.95 undervalued

0-0.85 very undervalued

http://www.runtogold.com/metal-prices/

Number crunching method two

I create six ratios by dividing one PM spot price by another:

PL/G, PL/S, PL/PA, G/S, G/PA, PA/S

Next, I calculate the 200DMA of each of these ratios.

Third, I compare todays ratios to their respective 200DMA.

Equation used: absolute value[1-(spot/200DMA)]

This allows to easily see which metal is undervalued compared to the other three metals.

Number crunching method three

Similar to the previous method, I consider the same six ratios.

However, this time I calculate the long term average and standard deviation.

Using these values, I calculate how many standard deviations the current ratio is from the long term average.

Equation: absolute value[(average-spot)/standard deviation]

This method gives a longer term view of the relative value of the four precious metals.

Current Analysis:

Using method one, I calculate the following numbers:

Gold: 1.077

Silver: 0.932

Platinum: 0.944

Palladium: 0.952

This method shows Gold to the metal to sell if paper curreny is required, while Silver would be the metal to purchase if more wealth storage is desired.

Using method two, I find:

PL/G: 13%

PL/S: 0.7%

PL/PA: 1.1%

G/S: 14.1%

G/PA: 11.7%

PA/S: 1.6%

This method shows the ratios between Gold and each of the other three metals to be over 10% removed from the average. This confirms the view of the first method that showed Gold to the most overvalued.

Using method three, I find:

PL/G: 2.00 deviations

PL/S: 1.97

PL/PA: 1.77

G/S: 0.83

G/PA: 0.32

PA/S: 0.95

Interesting, this method actually reflects Platinum to highly undervalued from a long term perspective. Since it is much rarer, Platinum usually trades for much higher than Gold, which is not currently the case.

Conclusion (as of the end of January):

Silver and Platinum is undervalued

Palladium is at average value

Gold is overvalued