Palladium is the most “industrial” of precious metals. Your car can’t run without it.
And since everyone in the world wants to drive like those car-razy Americans, it’s no wonder the price of palladium is up nearly 20% after hitting a floor on May 9.
Purpose of Palladium
The silvery white metal is a jack of all trades:
- It’s the favored catalyst in catalytic converters.
- It can absorb up to 380 times its volume in hydrogen. That’s why it’s used as a storage medium for hydrogen in hydrogen-powered cars.
- It’s used in fuel cells as an electrode material.
- Heck, it’s even needed by the jewelry industry to produce white gold — an alloy of gold and palladium.
But after its historic high on March 21st of $1613.89, the metal fell to earth, plummeting 16.8% to $1343.01 just seven days later.
“Prices may have been in a bubble,” said Bernard Dahdah, Natixis precious-metals analyst, told Kitco News.
Commerzbank analysts agreed:
“In our opinion, a correction of the palladium price was long overdue.”
I concur. The white metal had been on fire since early 2016, when it dipped below $500 an ounce. So, it was only a matter of time before investors decided to take their profits … a common strategy as the end of a quarter approaches.
Otherwise, there was no actual news to justify the move.
And now it looks poised for new highs.
“In spite of strong resistance being clear at the $1,600 level, we believe that it is only a matter of time before the palladium price breaks through and consolidates above this point,” precious metals consultancy Metals Focus said.
Then there’s the human element. In South Africa, the Association of Mineworkers and Construction Workers Union is looking for a 48% rise in the minimum wage. Negotiations have begun for a new contract in the South African mining industry for platinum group metals, meaning possible supply disruption.
This disruption of platinum gives considerable room for palladium to grow. According to Metal Focus:
Coupled with ongoing strength in its fundamentals, this underpins our bullish price expectations for palladium, which we believe will sustainably break through $1,600 later this year and then go on to set new highs.
Johann Wiebe, lead metals analyst at GFMS Refinitiv, added that fuel cells could pick up some of the slack that catalysts leave behind, as conventional automobiles slowly give space to electric vehicles (EVs) over the next decade.
My case for palladium is the same as it was back in February …
- A strong car market globally. Everyone wants to drive like Americans. Palladium’s primary use is in catalytic converters of gasoline-powered cars.
- The collapse of platinum demand for catalytic converters. Platinum is primarily used for catalytic converters on diesel vehicles. And it turns out “clean diesel was a lie.”
- A good old-fashioned supply/demand squeeze. It’s been going on for years. Last year, the supply/demand deficit eased, but this year, it looks to get particularly acute.
Palladium bullion is available in the form of coins and bars from Kitco and other dealers.
Or you could buy one of the physical palladium ETFs. In the U.S., that’s the Aberdeen Standard Physical Palladium Shares ETF (PALL).
All the best,
Sean
