There's a better way to play gold than buying gold (GLD, GLX, PPLT, PTM, PGM, PLTM)

Ilya Naymushin/Reuters

Platinum is the best way to invest in gold right now. 

In a note on Thursday, John LaForge, head of real-asset strategy at Wells Fargo, answered a series of client questions on gold, which have been the "lion's share" of all inquiries.

That's not surprising, given that gold is up 23% this year.

But the better play in gold is platinum, which has gained an equally impressive 21% year-to-date.

"Gold's recent run has made platinum look downright cheap at almost $200 per ounce cheaper," LaForge wrote. 

He included the following two charts. The top chart pairs the prices of gold and platinum, while the bottom chart shows the difference, or spread, between gold and platinum prices over time.Ilya Naymushin/ReutersWhen the purple line in the second chart falls below zero, it means platinum is more expensive than gold. Above zero, like it is right now, platinum is cheaper than gold. 

"We believe that this spread difference will close over the coming years, and gold will once again be cheaper than platinum," LaForge wrote. "The ideal investment positioning here is to go long platinum, short gold, or what we call a spread trade."

Investors who bet only on higher platinum prices could be burned because a drop in gold could drag platinum with it, LaForge said. 

He does not think clients should buy more gold today, with prices near $1,350 an ounce. That's because like other commodities, gold could eventually capitulate to the so-called bear super-cycle that has taken over other commodities.

Gold is likely to drop to $1,050, the low reached in December 2015, LaForge said.

"We believe that gold should be owned in a portfolio, but for long-term strategic buyers looking to accumulate, we believe that better entry points will be seen in the next few years," LaForge wrote. 

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