Palladium Hits Record High / Commodities / Palladium

Gold is no longer the most valuable precious metal! Palladium dethroned it! We invite you, thus, to read our today’s article about that metal and find out what is the fundamental outlook for the palladium market.

We have a new record! Please take a look at the chart below, which displays the palladium prices since the beginning of the year. As one can see, the price of palladium soared in the first two months more than 20 percent, jumping above $1,500!

Chart 1:Palladium prices from January 2 to March 1, 2019.

It means that palladiumis at an all-time new record high, as the next chart clearly shows. Take a goodlook. If you do not believe, visit kitco.com. But the figure does not lie – thepalladium is really more expensive than gold or platinum right now!

Chart 2:Palladium prices from April 1990 to March 1, 2019.

Who would havethought that palladium would shine so bright? Hm… in fact, we thought so! In July 2017 edition of the Market Overview, we wrote the following:

(…) the price ofpalladium should be supported in the near future. We know that the above-ground stocks of palladium are relatively plentiful (andmay be greater than the market expects), but market deficits at such heightscannot last indefinitely – and when the market eventually tightens, prices willneed to rise.

And this is precisely what happened. At the end of 2018, the period of extreme markettightness occurred, despite substantial liquidation of stocks. According to the latest Johnson Matthey’s Platinum Group Metals Market Report, the underlying structural deficit grew last yearand, what is more important, is expectedto widen in 2019, which will not be without significance for the price ofpalladium.

Why is that?The main reason is strong growth in autocatalyst demand due to the tighteremission legislation and stricter vehicle testing regimes. But if theautocatalyst demand is so strong, why platinum – which is also used mainly in the automotiveindustry – is so sluggish compared to palladium? This is because the latter is used in gasoline vehicles(and in hybrid electric vehicles, which tend to be partly gasoline-powered),while platinum is applied in diesel cars, which are out of favor after theVolskwagen scandal. We pointed out this key factor for the precious metals as early as in July 2017:

Given the retreat of diesel technology inthe automotive sector, palladium should outperform platinum in the long-run.Surely diesel will not disappear, but its dusk is very likely after theVolkswagen scandal (…) Therefore, taking all this into consideration, theinvestment potential of palladium seems to be greater than in case of platinum.

However, one ofour Readers turned our attention to another important factor which couldsignificantly affect the precious metals market. Have you heard about Zimbabwe?In the 2000s, the government started to expropriate white farmers as an effortto more equitably distribute land between black and white people. The effectswere disastrous, as the agricultural production declined sharply, and the hyperinflation set in. After farmland, the time has come for the mines – in 2008, Mugabe signed into law abill giving local owners the right to take majority control of foreign mines.

OK, but whatdoes Zimbabwe have to do with platinum and palladium? Well, nothing. But SouthAfrica has, as the country mines about70 percent of global platinum and about 38 percent of world palladium. Andwe see disturbing signals that the country is following the Zimbabwean route. InFebruary 2018, Cyril Ramaphosa, who become the new president, has prioritizedland redistribution. In December 2018, South Africa’s National Assemblyestablished a committee to introduce a new bill on land reform, making way for land expropriationwithout compensation for the previous owners. The land seizures are to repair“the original sin committed against Black South Africans during colonizationand apartheid”. Now, investors are afraid of the nationalization of the mines,as the Economic Freedom Fighters, a new left wing party, and even some membersof the ruling African National Congress call not only for farmland but also formines and banks to be state-owned.

Of course,South Africa is not Zimbabwe. But, Brexit or Trump as POTUS were once also consideredunlikely. Hence, we should not exclude the scenario of expropriation of mines(or the scenario of disruptions in the production at least). If itmaterializes, platinum would benefitfrom it the most, as the country is the dominant producer of this metal.However, palladium will also benefit,as the production would probably drop (in the medium-term). And given that thelatter metal has better fundamentals (platinummarket is instructural surplus, while palladiummarket is indeficit), it still seems to be a betterinvestment choice. Although it is true that the automotive demand forplatinum should stabilize in the near future, and the rising price discrepancyshould make platinum more attractive as catalyst, the autocatalyst producerssay that they are not seeing broad-based substitution from palladium toplatinum. Hence, the outlook forplatinum improved, but the path for the palladium is still better.

Thank you.

If you enjoyed the above analysis and would you like to knowmore about the gold ETFs and their impact on gold price, we invite you to readthe April MarketOverview report. If you're interested in the detailed price analysis andprice projections with targets, we invite you to sign up for our Gold & SilverTrading Alerts . If you're not ready to subscribe at this time, we inviteyou to sign up for our goldnewsletter and stay up-to-date with our latest free articles. It's freeand you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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