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How much higher can platinum and palladium go?

Kitco News

(Kitco News) - Platinum and palladium have continued to rally since the start of this year. "It looks far more likely for platinum to move towards the palladium price then for palladium to pull back," explained Trevor Raymond, Director of Research at the World Platinum Investment Council. "There are strong indicators that platinum may continue to move north. The questions are, is there enough fundamental demand growth, and where are the suppliers in that dynamic?"
Palladium had its best month in 14 years in January, while platinum performed its best since October.

Raymond spoke about the metals markets with David Lin, anchor at Kitco News.

Platinum and palladium are considered precious metals, but are used almost exclusively as industrial metals. They are critical components in catalytic converters, used to reduce emission from diesel and gasoline-powered automobile engines.

Raymond discussed why these two metals have had a significant run-up recently. "For platinum, it is because of increased investor demand for ETFs, short-term demand growth and increased constrained supply than in the past," he said. "For palladium, it is because of strong pent-up consumer demand for vehicles. We have seen the prices of used vehicles go up as much as 45% in North America. In the automotive industry, there seems to be signs of green shoots on managing its supply chain issues."

Much of the world's supply of palladium is produced in Russia, and with tensions heating up between Russia and Ukraine, Raymond spoke about the impact that could have on the price of palladium.

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"If sanctions were applied to Russia, and that affected the supply of precious metals coming out of Russia, Sydney could view those sanctions as a threat," Raymond pointed out. "It would lead to price weakness. But what we have seen in the past is that these metals tend to be fairly compact, very fungible and mobile, and very hard to sanction."

Raymond disclosed that investors are more concerned about inflation affecting platinum prices than the impact of geopolitics between Russia and Ukraine. "Inflation concerns are particularly high among retail investors in North America, so they look to platinum as a diversifier and a hedge against inflation," he said. "There is a potential demand increase for platinum which is quite unusual. Short-term demand growth from both substitution and higher standards on emissions for vehicles make platinum attractive. I think these are pretty strong drivers for platinum."

"We don't think the impact of sanctions would necessarily affect the supply of the metals, but it could cause global disruption. Certainly, it is a worry," Raymond emphasized.

Raymond spoke about platinum and palladium markets remaining strong despite continued supply issues with chips. "The chip shortage impacts gasoline vehicles, which are the dominant vehicles globally, more than diesel, and as a result there is a greater impact on palladium," Raymond explained. "But in general, we see the palladium market still being balanced at deficit, and certainly likely to be quite strong going forward."

In terms of investing in platinum and palladium, Raymond noted that there are many options for investors. "Platinum and palladium are listed in New York, London and several other exchanges, and there's easy access to those exchanges. Volume turnout for even small institutional investors is adequate. Nomics futures are an option for large investors," he said.  "Our website provides all the ETFs that are listed and there's more than 13."

For more on the metals markets, please watch the full video above.
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