LAWRIE WILLIAMS: Palladium closing the price gap with gold

To be fair palladiums’ supply/demand fundamentals look more positive than those for gold at the moment., and at today’s price what is now perhaps the most heavily traded pgm is  only around $70 below gold after lagging the yellow metal by a few hundred dollars for much of the year   Indeed palladium has been easily the best performing principal precious metal year to date.  Palladium trades more as a true commodity than most of the other precious metals while gold is largely dependent on investment money and this has been sadly lacking over the past few months.  

The main reason for palladium’s price strength is that it has become the preferred catalytic metal for petrol (gasoline) engine exhaust emission controls – having replaced its sister metal, platinum, which retains an advantage with diesel engines - and its price has usurped that of platinum – petrol engines being the market leader nowadays with diesel having fallen into disfavour in the big light vehicle market.  

Platinum is also seen as being in surplus, and likely to remain so given annual production is greater than that of palladium and demand is probably lower.  The only cloud on the palladium horizon could be that as palladium replaced platinum in exhaust emission control catalysts because it used to be a far less expensive metal, now that its price is at a premium over its sister metal, will the reverse come about?  Experts tell us no! as the chemistry and engineering involved in using palladium-based catalysts has advanced so far that the costs involved, and possible advantages. in switching back to platinum are just too great and effectively non existent even at the current price premium, but this could change if palladium prices continue to advance strongly.

Longer term the ever increasing move to electric vehicles (EVs) will likely put a dent in palladium’s growth prospects, but this is unlikely to be for several years yet.  Shorter term prospects for the metal look very positive as the world battles to fight environmental pollution.  Nowhere is this more relevant than in China, the world’s largest automobile market, and where urban environmental pollution remains an enormous problem and is thus likely to see ever-increasing palladium loadings in catalytic converters in the years ahead.

Meanwhile gold seems to be unable to break out from its current range between $1,210 and $1,230.  Declining equities markets could see a return to out-of-favour gold as a safe haven investment, but perhaps this remains something of an irrelevance if the U.S. dollar remains as strong as it has been recently.  This could all change should the recent substantial weakness in equities turn into a rout.  As we have pointed out in these columns before, should the falls in U.S. equities lead to the U.S. Federal Reserve holding back on its likely 25 basis point interest rate rise at the next FOMC meeting in a couple of weeks' time. At the moment the odds are on the Fed continuing with its tightening programme, despite the stronger dollar resulting beginning to adversely impact the U.S. economy.

All in all, therefore, we would not be too surprised to see the palladium price surpass that of gold within the next few weeks, albeit perhaps temporarily.  Should the equities markets, though, see something of a meltdown. which we also see as a possibility, gold could come into its own again as a wealth protector and regain its price dominance.

28 Nov 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com