Palladium could soon be worth more than gold, writes Myra P Saefong.
The price of palladium has increased with about 30% over the past six weeks and could become more valuable than gold for the first time in 16 years.
According to an article by Myra P Saefong, who writes for MarketWatch, futures prices for palladium jumped from a mid-August settlement low of USD837.20 an ounce to end at USD1 072.80 at the end of September, the highest finish since January. “That’s when prices hit a record above USD1 100, based on FactSet data going back to 1984. Palladium is widely used in the pollution-control catalytic converters on gasoline-powered vehicles.”
According to R Michael Jones, CEO of Platinum Group Metals, a company that owns platinum projects in South Africa, car demand is solid across the world, and trends are toward big Sport Utility Vehicles (SUVs) in the US and small gasoline engines in Asia, which all require palladium, says Jones.
On Friday 30 September 2018, the industrial metal traded USD250.40 above the USD822.40 futures price of platinum, and within USD123.40 of gold, which has been weak this year.
Sister metal platinum is more commonly used in catalytic converters for diesel engines, but demand for diesel cars has ‘plummeted in recent years’, partly a result of the Volkswagen emissions scandal, says Peter Grant, vice president of commodities and futures brokerage Zaner Metals. In 2015, Volkswagen admitted to manipulating emissions tests on some diesel-powered vehicles in the US and elsewhere.
Automotive demand for palladium, however, is expected to rise to a record high of nearly 8.6 million ounces this year, after logging an all-time high of 8.4 million last year, according to specialty chemicals company Johnson Matthey.
The firm reported that demand for palladium exceeded supply by 801 000oz in 2017, far more than the deficit of 89 000 in 2016. It forecasts another shortfall this year, though a narrower one, of 239 000oz.
Strong demand for palladium comes as global supplies have tightened. At the same time, palladium prices are gaining on gold.
“The gold/palladium ratio is historically the narrowest it has been in quite some time,” says Ed Egilinsky, head of alternative investments at Direxion. “Gold doesn’t have the same everyday industrial usage as palladium,” and gold has been, “more directly susceptible to a strengthening USD, contributing to its recent relative weakness.”
He says the historical, long-term relationship is that gold is priced two to three times higher than palladium. The current ratio is a little over one.
“It is possible for palladium to trade higher than gold…if palladium supply continues to be muted, demand for autos and electronics increases, and tighter emission legislation further takes hold in China and the US,” Egilinsky says.
Platinum Group Metals’ Jones believes that palladium could climb to USD1 200 this year and USD1 400 next year and wouldn’t need a new ‘catalyst’ to get there. “The chess pieces are all in place,” he says.
The article was written by Myra P Saefong who writes about commodities for MarketWatch.