Palladium Reaches a Record High - Is the Next Stop US$1,500?

Palladium set a record and pushed against the US$1,500 threshold early in Tuesday’s (February 19) session, on the back of a prolonged supply deficit.

Following chatter that the deficit will widen this year, thanks to stricter emissions standards and an increase in demand for catalytic converters, palladium shot up, briefly reaching US$1,491 per ounce at the beginning of the trading day.

“The palladium market is facing a substantially growing physical deficit … driven more from the demand side due to rising automotive demand,” said Philip Newman, director at Metals Focus.

“Also, there won’t be a substitution from palladium to platinum as it is very difficult to achieve and takes a very long time to make sure it is compliant,” he 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 this off in favor of holding palladium in their portfolios.

In addition to the deficit, palladium, unlike its sister metal platinum, has been benefiting from the transition from diesel engines, as well as the expected growth for hybrid electric vehicles, which often times are partly gasoline-powered.

“It’s very difficult to predict in a market which is very small, but we are nearing the US$1,500 level, and reaching it is very likely as tightness in the market along with the [recent] dollar weakness is providing some lift,” Newman stated.

Despite the rally, several industry insiders remain bearish on the precious metal and believe that the palladium price climb will come to an end.

“Bearish news is still being ignored. It seems as if the price is determined to push on up, come what may. We no longer understand the price response. That said, it is impossible to say when the correction — which we believe is long overdue — will ensue,” Commerzbank noted in its latest report.

As of 3:45 p.m. EST on Tuesday, palladium was trading at US$1,462.00 per ounce.

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