While 2018 has proved challenging to most precious metals, palladium is offering a strong performance in the second half of the year.
It hit two all-time highs this year. And it’s looking to set another record-high before year end.
Palladium is a precious metal, but it serves an industrial use. The metal works in catalytic converters in cars to cut down on emissions. It is a catalyst that turns noxious fumes into benign gases.
Over 75% of palladium ends up in catalytic converters.
The silvery-white metal is the choice for gas engines. In contrast, diesel engines most often see platinum used.
The clean diesel narrative that carmakers were pushing just a few years ago turned out to be a fairy tale.
Volkswagen’s diesel emission scandal went on to plague other European manufacturers. Fiat Chrysler, Renault and Mercedes-Benz were all shown to be cheating emission tests in diesel lines.
The net effect is twofold. Automakers cut production of their diesel lines, and consumers lost trust in diesel cars.
The scandal crushed platinum prices. Platinum bottomed in August at $768 per ounce, a level it hasn’t seen since 2003.
While the price of platinum has only nudged higher since August, palladium rallied 34%.
Palladium’s recent strength is due to its tight supply-and-demand dynamic.
Demand for palladium outstripped supply over the past eight years. And 2019 is setting up to be another year of shortages.
Palladium’s high price is attracting the attention of precious metal speculators. It is also setting up for a recovery in platinum.
The sister metals share enough characteristics that they can be interchangeable. If palladium prices become too high, manufacturers will seek out platinum alloys as replacements.
The risk for both palladium and platinum at this point is a global slowdown in growth from the trade war.
We are waiting for real progress on this front before we see staying power from palladium’s bull run.
Good investing,
Anthony Planas
Internal Analyst, Banyan Hill Publishing
