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In addition to gold and silver, palladium is also worth a look, given rising demand for the metal in catalytic converters and a lack of growth in new supply.
The mainstream media continues to shout and yell about the gold and silver bull market. The more informed even talk about platinum being one of the rarest precious metals but palladium and the palladium prices does not get the attention it deserves. It has been said many times that silver is gold on steroids in a bull market—palladium could be the new bull on steroids.
Demand for palladium is driven by industry not jewelry. There are commercial applications for palladium in the automotive industry for catalytic converters, which help remove the pollution from combustion engines. Palladium is also used in electronic and chemical applications and in jewelry.
The secondary market for the metal has a major impact on palladium price as scrap metal merchants look for high profit recovery and Russia leverages its palladium stockpile for cash. Similar to secondary markets of uranium there is a huge unknown regarding strategic holdings of palladium in various countries, mainly Russia.
Most of the current supply of palladium comes from Russia, with the next biggest contributor being South Africa. Demand for the metal is primarily driven by a global automotive industry that is slow to change and adapt to new regulations and consumer behavior. As the Titanic could not turn before the iceberg the automotive industry cannot do without oil which means emissions.
To limit the effects of exhaust from combustion engines, catalytic converters are required on most cars sold in major markets. For gasoline vehicles, these converters need palladium.
Palladium price drivers
Vehicle demand is rising steadily and supply has stagnated, suggesting an increase in palladium price and a potential rise in exploration for new supply.
The current palladium price is $705.55 per troy ounce which is up significantly since a June low of $530. The high in 2014 was over $900 and low in 2009 was less than $200 so this metal has seen a lot of volatility.
Although there has been a run in the palladium price following the bullish markets for gold and silver, it is expected that the palladium price will be softer. The major driver of this softness is the stockpiles of palladium held by the major producing countries and traders. The spot market for precious metals will continue to see price fluctuations. Hopefully, the recent positive trend will continue, but as always, buyer beware.
In the most recent FocusEconomics Consensus Forecast Commodities report from mid-July, the majority of analysts surveyed predicted that palladium prices would rise by the end of the year.
Price chart for palladium year-to-date. Courtesy of Kitco.
Investing in palladium
There are many ways to invest in precious metals including ETF’s, hard assets, producers, and if you have a high risk tolerance, the juniors exploring and aiming to develop the world’s next great mine.
One company moving forward is Wallbridge Mining (TSX:WM), a company with a large land position in Ontario. Wallbridge’s history at the Sudbury mining camp begins in 1996, but the company has just started producing palladium and other metals from its Broken Hammer open pit mine.
Marz Kord, Wallbridge President and CEO recently said “We plan to achieve our goal of becoming a mid-tier mining company by building on our current assets and the strengths and capabilities demonstrated by our recent successes in developing and operating our Broken Hammer open pit as well as our ongoing partner-funded exploration joint ventures, and the value generated within our spin-out companies.”
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Securities Disclosure: I, Nick Smith, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Wallbridge Mining is a client of the Investing News Network. This article is not paid for content.
BELOW IS THE PREVIOUS VERSION OF OUR OUTLOOK FOR PALLADIUM PRICES. PLEASE SEE THE ARTICLE ABOVE FOR MORE UP TO DATE INFORMATION
Palladium Price Forecast 2016 (December 17 2015)
When we last checked in on palladium prices at the start of November, the white metal wasn’t faring too well. Along with its sister metal platinum, palladium had fallen nearly 20 percent since the start of the year, and was trading at around $649 per ounce.
Unfortunately, things have not gotten much better since then, and the palladium price forecast is not looking up just yet. Spot palladium prices are now down about 31 percent year-to-date, currently sitting at $554.
Take a look at the following price chart from Kitco to see some of the price action for palladium this year:
Image courtesy of Kitco.
Palladium troubles
For most of the year, the continuing threat that the US Federal Reserve would raise interest rates (as it now has), put pressure on the entire metals sector, while a stronger US dollar and concerns over Chinese demand weighed on both platinum and palladium over the summer.
What’s more, all of those factors have led to an overall sense of uncertainty about the market, and that’s put a damper on investor sentiment. “For palladium, I think it’s more that people were taken by surprise by the move down earlier this year, and were unnerved by it,” Macquarie analyst Matthew Turner told Reuters earlier this year. “When it bounced back, they may have thought it was a good time to get out of the market.”
Johnson Matthey (LSE:JMAT) is calling for a 427,000-ounce palladium deficit by the end of the year, according to Kitco. However, the firm also sees palladium demand falling for the year.
“Palladium demand is set to fall sharply, as investment swings from strongly positive last year to significantly negative in 2015,” said Johnson Matthey. “This will greatly outweigh modest growth in auto and industrial consumption.
Not all bad for the palladium price forecast
That said, Commerzbank (ETR:CBK) was more positive on platinum and palladium demand in December, citing a 14-percent rise in European auto sales as supportive for both metals. According to Platts, the firm suggested that higher auto sales could mean “robust demand for platinum and palladium, especially since more new cars should be registered in the EU next year too.” This increased demand is expected to lend weight to a positive palladium price forecast for 2016 as well.
Meanwhile, auto demand is increasing in other parts of the world as well. The China Association of Automobile Manufacturers reported a 24-percent increase in car sales, year-on-year, for the month of November. That came along with a tax cut on vehicles to encourage purchases in the country.
Hebba Investments, writing for Seeking Alpha in November, stated that the change should boost palladium demand.
Furthermore, Hebba pointed out that Goldman Sachs (NYSE:GS) had predicted that the Volkswagen (ETR:VOW3) diesel vehicle emissions cheating scandal will stoke more palladium demand. Palladium is used in autocatalysts for gasoline vehicles, while platinum is used for autocatalysts for engines running on diesel.
In the same vein, William Tankard of Thomson Reuters GFMS stated earlier this year that ongoing adoption of more stringent emissions regulations in China, combined with a growing population buying more and more vehicles, will mean an increase in palladium demand.
Certainly, while palladium may have been under pressure in 2015, there’s plenty for precious metals investors to keep an eye on in terms of the white metal going into the new year.
**Above is an older version of our outlook for palladium prices. Please see the article at the top of this page for more up to date information**
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Related reading:
Palladium Price Forecast 2015
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