LAWRIE WILLIAMS: Updated: Gold price back ahead of palladium again

Nervousness about the onset of a possible global recession plus a perceived drop in gasoline (petrol)-powered automobile sales worldwide has seen the high-flying palladium price slip back.  With gold showing some strength, the price positions between the two precious metals have again reversed – as I predicted in early year price forecasts – with gold trading as I write at about a $10-15 premium over the pgm.  However palladium supply/demand fundamentals remain strong and the price tends to be much more volatile than gold so don’t be too surprised if it regains its price ascendancy over gold in the short to medium term, but perhaps only briefly..  Indeed it did so almost immediately after gold initially surged ahead of it albeit since then the palladium spot price has slipped again with gold trading at a higher level.

Historically gold has usually traded at a substantial premium over palladium, although not over the latter’s sister metal, platinum.  We suspect over time there will be something of a return to the status quo with platinum playing catch-up, but that may take some years to come about.  Palladium demand is hugely dependent on the autocatalyst market – a recent estimate is that this sector accounts for 80% of palladium demand – so a continuation in the drop in auto sales could hit the metal hard.  But there remains a big supply deficit overhang which will take some time to eliminate so palladium could yet benefit from the occasional price spurt.

The ever growing take-up of battery electric powered vehicles, and perhaps longer term of fuel cell power, will also severely dent the prospects for palladium, as it will for another pgm group metal, rhodium, which tends to be utilised – in very small quantities – alongside palladium in autocatalysts, but it will probably take a few more years yet for these alternative drive systems to put a serious dent in the internal combustion engine market,  Given that the world’s second biggest auto market is the U.S., and that country is currently led by a climate change sceptic who perhaps sees less need for non-polluting vehicles, and has a strong following, the take-up of alternative-powered automobiles may move slower than anticipated in that part of the world.  However the world’s biggest auto market currently is China, and given that country’s air pollution problems electric vehicle take-up there is likely to be stronger.  Europe too is seeing strong growth in non-polluting automobile take-up, with Norway leading the field in this respect.  The successes of the Green Party in the recent EC elections is another indicator of the likelihood of an accelerating take-up.  Swings and roundabouts!

As for gold itself there appears to have been a major change in sentiment towards the yellow metal which has certainly been price supportive over the past few days, although it has seen mixed fortunes after an initial spurt to close to $1,350 an ounce.  This morning the spot price is at just over $1,330.

All in all though there are a number of factors which look to be in favour of a rising gold price.  Tariff wars instigated by President Trump’s aggressive foreign trade policies, geopolitical instabilities in several parts of the world which could blow up any time, more fearful equity markets and the now likelihood of U.S. Fed rate cuts all would appear to be gold price supportive.  Gold investors may yet have something to cheer about as the year progresses.

04 Jun 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