Palladium Breaks US$1,400 Mark, Rises Over 65 Percent Since August

Despite signs that global vehicle sales are down, palladium broke through the US$1,400-per-ounce threshold early in Thursday’s (January 17) session, surging more than 65 percent since mid-August.

The precious metal, which lapped gold in December 2018 for the first time in 16 years, continues its bull streak on the back of growing demand for more emission-friendly gasoline-powered automobiles, which tend to use more palladium in autocatalysts, over diesel vehicles. That paired with an acute supply shortage of the metal has resulted in buyers scrambling to obtain it.

“The key market drivers are still the same. On one hand, supply is tight, with substantial supply deficits forecast for this year and next. At the same time, demand is buoyant, supported by the EU’s shift from diesel to gasoline and hybrid vehicles,” said FocusEconomics in its most recent report.

“[S]peculative buying likely stoked prices even further, as investors piled into the commodity due to optimism over future prospects,” it added.

Even as signs of automotive weakness in key markets begin to show, with annual car sales in Europe falling for the first time since 2013, China declining in 2018 and sales in the US barely rising, investors appear to be shrugging them off in favor of holding palladium in their portfolios.

“Investors appear to be ignoring the fact that weak sales figures have been reported for all major auto markets in recent days,” Commerzbank analysts told Bloomberg.

“Instead, they are seeing news such as the planned widening of a strike to include the platinum mines of a major South African gold and platinum producer as being a good reason to buy,” they added.

At the moment, investors seem to have a sole focus on palladium’s supply deficit, a deficit that is supposed to remain for an eighth straight year, according to Metals Focus.

What’s more, the surge in price does not mean that an increase in supply will follow suit. In fact, the precious metal’s status as a by-product of mines in South Africa and Russia means production is unable to react to meet short-term demand even with rising prices.

However, despite palladium’s recent popularity and price surge, market watchers wonder if its rally can be sustained, as there is an obvious lack of new catalysts to drive the metal higher.

“Palladium correlations are all off at the moment, meaning prices did not go down when equities did, nor when markets were nervous about China for example,” said Georgette Boele, senior FX, precious metals and diamond analyst at ABN Amro Bank (AMS:ABN).

“I can’t be positive on the metal as supply may not be as tight as it seems and car sales are weakening everywhere in the world,” she added.

As of 12:43 p.m. EST, palladium was trading at US$1,371.00 per ounce.

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