Gold and platinum usually tussle for the title of the most expensive precious metal, but both are being surpassed this year by palladium. The Aberdeen Standard Physical Palladium Shares ETF (NYSEArca: PALL) is up more than 43% this year, underscoring the white metal’s ascent to record heights.
As is often the case, favorable supply/demand dynamics are pushing PALL and palladium prices higher this year.
“While car sales have been sluggish, tighter environmental laws in Europe and China are boosting consumption, according to Australia & New Zealand Banking Group Ltd. Production is likely to continue to trail use through 2020 amid increasing demand, Bloomberg Intelligence analyst Eily Ong said in an Oct. 17 note,” according to Bloomberg.
Moreover, the return to lower interest rates around the world has continued to support demand for physical assets, which tend to exhibit an inverse relationship to interest rates since investors are less apt to hold non-yield-generating raw materials when bonds offer higher yields in a rising rate environment.
More Favorable Precious Factors
“There’s been concern that palladium’s hefty price could prompt automakers to find lower-cost materials for their pollution-control equipment,” reports Bloomberg. “So far there isn’t any sign of that happening. Platinum, a cheaper sister metal used largely in diesel vehicles, is often mentioned as a possible alternative.”
Unlike the other white metal platinum, which as part of catalytic converters for diesel engines, palladium has benefited from a positive demand outlook that analysts expect to persist as governments around the world aim to meet rising environmental conservation goals.
“Production of platinum-group metals in South Africa shrank the most in 18 months in August, while growth in Russia stalled last month, government data show. Power outages in South Africa have helped cloud the supply outlook for palladium,” according to Bloomberg.
However, the palladium market is not without its risks. Despite the recent strength, some analysts have warned of a swift turn, underscoring palladium’s tendency for outsize swings when sentiment changes or a reversal in other precious metals like platinum and gold that could drag down the broader precious metals group.
For more information on the palladium markets, visit our palladium category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.