Inflamed US-Iran Relations Push Palladium Above US$2,000

Amid disintegrating relations between Tehran and Washington, the price of palladium hit a fresh all-time high on Monday (January 6). 

Over the last six months, the precious metal has steadily trended higher, breaking several of its own records along the way. Its latest high on Monday took it to US$2,047 per ounce, though it has since slipped slightly to trade at US$2,024 on Tuesday (January 7) morning.

The recent value spike has been attributed to increasing tensions between the US and Iran. Their relationship took a turn for the worse late last week when the Trump administration gave the green light for a drone attack that killed controversial Iranian general Qassem Soleimani.

The drone assault was in response to what the US claims was a growing and credible threat presented by the general and his associates.

The killing of the high-profile Iranian military leader drew instant condemnation from Iranian officials, with some reports claiming that high-ranking leaders have vowed to avenge the death of Soleimani.

As talk of tough military intervention grows in both nations, investors have been looking to safe haven precious metals to fortify their portfolios ahead of a potential conflict between the two nations.

In the four days since the killing, the price of palladium has climbed just over 3 percent from US$1,964, where it was before the incident.

Palladium isn’t the only precious metal that has been bolstered by the growing animosity between the US and Iran — gold hit an almost seven year high on Monday of US$1,578.80 per ounce before slipping to US$1,565.20 by the end of the trading day.

But while gold, silver and platinum have performed with volatility over the last few days, palladium’s gains have been steady, likely because the metal was already doing very well due to a supply shortfall and growing demand from the automotive space.

At the end of 2019, some market watchers expected palladium to keep rising this year, although they could not have anticipated turmoil and subsequent growth brought by the moves from the US and Iran.

“Palladium prices are expected to continue rising over the course of 2020, albeit at a slower pace than seen over the past few years,” CPM Group Vice President of Research Rohit Savant told the Investing News Network (INN) in late December.

He added, “Investors are the primary drivers of palladium prices and they are unlikely to sell their holdings unless there is a meaningful deterioration in the supply and fabrication demand fundamentals. This is not expected to occur in 2020.”

Now, in the wake of the recent geopolitical turmoil, analysts and sector watchers are warning that the palladium market cannot sustain its high levels.

Carsten Fritsch, an analyst at Commerzbank (OTC Pink:CRZBF,ETR:CBK), told Reuters on Monday, “(T)he higher the prices go, the sharper the correction will be.”

This sentiment was echoed by Mercenary Geologist Mickey Fulp in early November, when palladium continued to break its own previous records and trend higher and higher.

Fulp told INN at the time that the metal’s hyperbolic rise would inevitably correct.

“I didn’t think (palladium) was going to US$1,800; I didn’t think it was going to go to US$1,200. It’s just gone out the roof,” he said. “When metals go exponential, or any financial market of any kind when prices go exponential, they will go parabolic and come right back down the other side, so I wouldn’t be buying palladium right now.”

Just when the long-awaited palladium correction will occur remains to be seen.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.