LAWRIE WILLIAMS: Palladium, platinum and rhodium leading the way.
The platinum group metals (pgms) continue to show great strength – but the whole precious metals complex seems to be doing well at the moment. However gold and silver are still languishing below the levels achieved immediately after the USA took out top Iranian general, Qasem Soleimani, and some key Iraqi militia leaders, in what appears to have been a drone strike conducted on Iraqi soil. With the U.S.’s technical military dominance paramount there may well be little Middle Eastern leaders and forces can do to retaliate, but the longer term effect may well be strong destabilisation of what is already a pretty unstable area.
The Iranian admitted accidental downing of a Ukrainian passenger jet with substantial tragic loss of life has perhaps caused Iran some self doubt, although there has been a theory put out by a former CIA agent that U.S. cyber warfare could have been responsible by hacking into the Russian anti-missile system software and the disabling of the airliner’s transponder which denoted it as non-hostile. One suspects that if this was the case it will never be able to be proved!
But, continued instability in the Middle East and the potential impact on oil production there and in Libya, where a major refinery has been forced to shut down by the civil war in that country, will likely have a continuing effect on global economic sentiment and keep precious metals prices strong (except perhaps silver which seems to be slow to show much progress). So saying, this morning, gold seems to have settled above $1,560 (a new base?), while platinum is comfortably above $1,000. However, once again palladium, which has the strongest fundamentals, has been the star performer hitting around $2,400 and subject to a big supply squeeze - that is if one ignores rhodium which is now over $8,000 an ounce, but that market is pretty small.
How long can palladium continue its strong upwards path? A global downturn in new car manufacture and sales is being counterbalanced by ever-stronger environmental regulations requiring higher catalyst loadings in exhaust control systems, while the impact of electrically, or fuel cell, driven vehicles which are non-polluting, has an enormous way to go before making a serious dent in vehicle sales. But, as we have pointed out before, the seemingly ever-rising palladium price, together with an apparent shortage of availability, has to be stimulating strong substitution research and platinum, which was largely replaced by palladium in exhaust emission control catalysts for cost reasons, has to be the front-runner in this respect as auto manufacturers strive to keep costs down and boost sales and platinum is already a known catalytic metal for exhaust emission control. As soon as there is any indication from exhaust system manufacturers that such alternative emission control systems are even under consideration, we are likely to see a rise in the platinum price and a fall in that of palladium.
As I write, the gold price is at around $1,560 a troy ounce, silver just over $18, platinum at $1,010 and palladium dominates the principal precious metals market at $2,360. By the year end we still expect to see gold over $1,600, platinum at around $1,150, palladium at a little over $2,000 but falling. We do also anticipate silver playing catch-up, at least to an extent, at around $19. Geopolitical and geo-economic factors seem set for positivity in precious metals, but a lot can change in 11 months! We’ll keep you updated through the year as to how we see things developing.