Is Palladium Better Than Gold?

Is palladium better than gold? That’s a question plenty of market watchers are asking now that analysts have started to favor the white metal.
Certainly, palladium has been a favorite within the precious metals complex in the past, but it might seem strange to pick it as a front-runner now. Compared to the gold price’s 2.6-percent gain since the start of January, the palladium price is down nearly 13 percent.
So, why is palladium better than gold? According to Bloomberg, precious metals analysts say that palladium has stronger fundamentals behind it, and is therefore worth a look.

Palladium is used mainly for catalytic converters, and at least one analyst expects rising vehicle demand in China to push the palladium price upwards. Meanwhile, he expects gold’s rally to be short-lived.
“The gold market is benefiting from geopolitical news and Chinese stock-market uncertainty, and these factors are unlikely to last,” Bernard Dahdah of Natixis (EPA:KN) told the news agency. “Palladium looks far more appealing based on its fundamentals. It is going to rally on increased Chinese car demand.”
Certainly, his words are worth heeding — Dahdah made the most accurate forecast for the gold price last year, coming within $1 of the average 2015 gold price.
Furthermore, auto demand is certainly expected to rise, which is good news for palladium. In a recent report from Scotiabank, Carlos Gomes calls for record global auto sales in 2016, pointing out that sales in North American markets grew by 7 percent in 2015, the highest in nearly 20 years.
Gomes also points out that auto sales in China have accelerated in recent months, and are expected to increase by 7 percent in 2015. That’s largely due to a 50-percent cut in the sales tax for new vehicles if engine capacity is less than 1.6 liters.

Dahdah isn’t the only analyst who is relatively positive on palladium. In its latest commodities forecast update, BMO Capital Markets states, “it’s easy to paint all metals with the same brush (weak demand), but if fundamentals are in play in H2/16E, we would expect palladium, zinc, and uranium to outperform.”
Of course, the key word there is “relatively.” BMO recently cut its 2016 forecast for the palladium price by 13 percent, from $750 to $650 per ounce, keeping its long-term call of $900 the same.
So, at the end of the day, is palladium better than gold? In any case, it appears that while palladium is down, the white metal is not yet out. Investors will be keeping a close eye on the palladium price, as well as palladium ETFs and palladium stocks moving into the new year.
 
Securities Disclosure: I, Teresa Matich, hold no investment interest in any of the securities mentioned in this article.