The Conversation (0)
Despite a recent downtown for the palladium price, a strong automotive sector, along with a number of other factors, has analysts thinking the precious metal might be on the verge of a price rise.
As South Africa looks to recover after the five-month strike that hit its platinum-group metals miners, a number of factors could allow palladium to have an extended price run.
Palladium has valiantly tried to outperform other slumping commodities. Its price activity was impressive this summer, and though it recently hit a slump, dropping nearly $200 to $729 per ounce, it’s currently sitting in the $750 range, with analysts believing it’s poised to move higher.
Indeed, it posted a 0.6-percent increase on October 31, making it the only commodity to do so.
As goes the auto industry, so does palladium
About half the world’s supply of palladium is used in catalytic converters, which convert roughly 90 percent of the harmful gases created by auto exhaust. Therefore the good fortune of the auto industry is intrinsically tied with palladium.
While gold and silver prices have been struggling amidst a downturning market, China has continued its love of new cars — the country is estimating sales of more than 20 million cars this year. Meanwhile, in the United States, the second leading customer of cars, sales rose 9 percent from a year ago in September, while Canada saw record sales of 2 million cars.
Scotiabank estimates that total car sales will hit 72.2 million in 2014, the highest amount ever seen. The prediction certainly bodes well for palladium.
LME getting ready, Russia looking to assure future
Both palladium and platinum are set to have a price benchmark set by the London Metal Exchange (LME) at the start of December as investors look for a stable price. As the LME looks to establish control over the precious metal, some companies are taking an interest in ensuring they maintain a stock of palladium moving forward.
Norilsk Nickel (MCX:GMKN) is reportedly raising funds to create a stockpile of palladium largely purchased from Russia’s central bank. The two sides plan to meet later this month as both look to bolster prices.
“This won’t be a trading agreement, but the main aim of this cooperation is to put together the interests of the two countries in this field,” Sergei Donskoi, Russia’s Natural Resources Minister, told Bloomberg News.
If the two sides do end up working together, that will also likely be a boon to palladium prices.
Running of the bulls
A final factor that could help palladium move higher was described recently by William Adams, an analyst with FastMarkets. He believes that if gold can stabilize, then there could be gains in store for palladium.
“While gold is under pressure, palladium may struggle to attract follow-through buying,” Adams said, adding, “[i]f gold stabilises, I think palladium will be where gains will be seen.”
Edel Tully, from UBS, also believes that a recovery is in the cards for the metal.
“This recovery confirms that despite the $170 washout in palladium between September and October, investors remain positive on the metal and are keen to rebuild positions at these lower levels. The preference for palladium is evident,” she said.
Certainly the future seems rosy for palladium.
Securities Disclosure: I, Nick Wells, hold no direct or indirect investment in any of the companies mentioned in this article.