LAWRIE WILLIAMS: Precious metals performing positively – pgms in front.
Yes it is very early days yet and everything can change in the blink of an eye, but precious metals investors should be pleased at their performance over the first couple of weeks of 2018. All the major precious metals have seen gains so far – but will they continue? And if so can they maintain their rate of increase further into the year.
So far the pgms are leading the way, and it is platinum which has been the star performer - up over 6%, while palladium has been lagging with an increase of just over 4%. Then comes gold – up around 2.7% and silver around 1.8%. Gold stocks as measured by the HUI Index are up close to 4.8%. Silver stocks as measured by Nick Laird’s Silver 7 index – which looks at seven top primary silver stocks- is up 4.4%. All in all a healthy start if you’re in to precious metals.
But it is not only the precious metals which have had a stellar start to the year. The Dow is also up by around 4.4% and the S&P 500 by 4.25%. So some of the increase in US dollar terms may well be due to dollar index depreciation. (The dollar index is down by around a percent year to date).
Of the rises, a number of analysts had been predicting at least a narrowing of the gap which had opened up between platinum (the worst performing precious metal in 2017 and palladium – far and away one of the best performing commodities of all last year when it rose by over 40%). The latter is seen as being in a substantial supply deficit, while some, but not all, analysts put platinum in deficit too. Historically platinum prices have been substantially in excess of palladium which led to the growth in palladium-based catalysts being the primary solution for exhaust emission control systems for petrol (gasoline) driven vehicles as providing a far less costly solution than platinum-based catalysts, which had initially been seen as the solution. Now, with palladium more costly than platinum, there is speculation that we may see platinum start to erode palladium’s dominance in this field again with the former playing catch-up with the latter pricewise and thus affecting the supply demand balance for both metals.
We have looked at that likelihood earlier but were warned by Frank McAllister – former Stillwater CEO, and admittedly thus a palladium enthusiast – that palladium is actually a more efficient emissions control catalyst for petrol engines than platinum anyway. But of course this may be because of all the research which went into utilisation of what was then a much cheaper metal to keep automobile costs down. We shall see over time if McAllister is correct but he did publish a paper suggesting palladium should command a price premium over its sister metal because of this a few years back and so far he has been proved correct in this assumption. But whether this will all hold true, given the recent pricing level switch between the two metals, will no doubt be played out over the year ahead.
Overall though we think all the precious metals are due for a bit of a run this year, although perhaps not to such high levels as some analysts are predicting. We do think silver may turn out to be the best bet overall in terms of percentage increase, but not for nothing is silver known by traders as the ‘devil’s metal’ as being hugely unpredictable – and certainly not for the proverbial ‘widows and orphans’. This does suggest that the exceptionally strong 2 week gains are unlikely to be maintained in the months ahead but double digit percentage gains for all of them likely over the full year, with platinum maintaining its early lead.