Palladium Price Heading Toward Parity With Gold
Palladium has been hitting record highs lately in a market considered to be in an annual supply/demand deficit. Spot metal topped $1,231 an ounce overnight.
Analysts with Commerzbank pointed out that palladium prices have been within $10 an ounce of gold.
“Parity seems within reach and only a question of time,” Commerzbank said.
To show just how far palladium has come, consider this. In September 2011, gold hit a record high around $1,920 an ounce. The same month, palladium’s peak was $783. In other words, since then, palladium has gained some $1,100 on gold, an average of more than $150 a year.
As of 9:23 a.m. EST Tuesday, spot palladium was at $1,223 ounce, while spot gold was at $1,240.40.
Palladium is often thought of as the precious metal with the heaviest industrial use. Like sister metal platinum, palladium’s primary use is in catalytic converters for automobiles. The metal traditionally was cheaper than platinum, thus used in gasoline-powered vehicles that are popular in the world’s two largest auto markets -- the U.S. and China.
“There is a structural [supply] deficit,” said Bart Melek, head of commodity strategy with TD Securities. “That is now being driven to a deeper one. There is optimism there might be a trade deal between the U.S. and China.”
If so, this is expected to mean stronger economic growth and thus more demand for palladium in autos, particularly since emerging-market nations tend to use gasoline-powered cars, he explained.
Melek commented that “it’s very possible” palladium could achieve parity with gold, and this might even last for a while. “It’s a market in a chronic deficit,” he said.
Meanwhile, Commerzbank pointed out that palladium’s premium over platinum has been more than $400. Historically, platinum was the more expensive metal, although this changed in autumn of 2017. Platinum is used for diesel-powered vehicles. There is conjecture that at some point, auto manufacturers might start substituting platinum in place of palladium in gas-powered cars, but so far this has not happened to any meaningful degree due to the cost of the switchover, observers have said.
“The last time the price differential between these two precious metals [palladium and platinum] was this high was in February 2001,” Commerzbank said. “The high price premium on palladium is not justified in our opinion because car sales have been fairly weak on all key markets of late.”