LAWRIE WILLIAMS: Palladium price falls back below gold

In morning trading in Europe the price of palladium fell sharply again while that of gold rose and, as I write, the spot gold price, according to kitco.com is exceeding that of palladium by nearly $10 an ounce.  I had predicted earlier this year (see: Palladium hare and gold tortoise)that gold would get back to a premium over palladium and one suspects that the current price advantage for the yellow metal won’t necessarily last in the immediate short term, but the trend is clear.

While fundamentals for both precious metals look positive, palladium looks to have been seen to have risen too far too fast.  It has also been hit by what seems to be a major global downturn in new automobile sales which has seen the price dive by over $300 in a month and a half, having peaked at over $1,600 an ounce in late March.  Growth in the take-up of electric driven cars will not be helping here either.  Gold as I write is in the low $1,280s spot, but palladium has continued to fall back and is now in the mid-$1270s.  But the gold price looks as if it may be on the up, although recently gains in Europe have tended to be rapidly eroded when the U.S markets open - although prices have tended to recover late in the day.

So what are the prospects going forward?  Equities are looking vulnerable with Asian stocks down overnight and Europeans all down this morning on continuing worries over a U.S.-China trade war.  U.S. stocks fell heavily on Tuesday and although the Dow recovered marginally by a couple of points yesterday the S&P and NASDAQ both continued to fall.  The performance of these will be watched closely today.  The dollar is flat with the index in the mid-97s, crude oil is down a little – the only bright spark seems to be bitcoin but there is the strong suspicion that prices are being manipulated upwards by a group of big players in this still relatively small market.  We think gold may be poised for an upwards blast back through $1,300 but this will rely on those U.S. entities that have been holding it back relenting a little and allowing the breakthrough.  One doubts, though, if gold will really take-off until it breaches the seemingly magic $1,350 level, which it remains well short of, so that may not be for a few months yet.  We still anticipate gold hitting over $1,400 towards the year-end.

As for palladium, now the price bubble is seen to have burst, even if only temporarily, it could well drop back another few hundred dollars over the next few months, and might even get close to parity with its sister metal, platinum, although on the face of things its fundamentals still look by far the stronger.  But sentiment remains a big player in the markets and the force may no longer be with palladium given that its seemingly inexorable price rise has been dented.  Precious metals prices are always difficult to call – far more so than base metals where supply/demand patterns may be more obvious.  But in the case of palladium one has to recognise that it is, in reality, very much an industrial metal and its fortunes tend to wax and wane with the overall state of the global economy – and this is not looking strong at the moment.

09 May 2019

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