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The price of the precious metal palladium has soared on the global commodities markets. In the past 30 days (as of Feb 26th), palladium as seen an increase of 23% and over the last year the metal has grown 73%. Many current and potential investors are rightfully asking, “Why has this increase and recent jump happened?”
At about $2,650 (£2,049) an ounce of palladium is about 60% more expensive than gold. It is heavily used in the automobile industry and as of recent has developed a growing number of investors looking to precious metals other than gold, silver and even platinum to invest their money. Thus the forces that have pushed the price up will likely continue.
85% of the demand for palladium comes from the production of automobiles and specifically the creation of catalytic converters which are a vital part of internal combustion engine’s emissions control system. Last year the production of palladium slowed and the supplies held by the auto industry decreased. What’s more, automakers have further increased their demand for the metal because of future international emissions regulations. Higher loadings for both palladium and rhodium are required to meet forthcoming European and Chinese emission standards legislation. This requirement has led some auto companies to increase stockpiles in preparation. This decrease in supply has led to an increase in price as is seen in traditional supply and demand curves.
The US-China trade deal, which was signed two weeks ago, has also boosted prices. This move is hoped to slow the decline in Chinese car sales. In the short term this may be briefly affected by the coronavirus outbreak but in the long run will have a positive impact and traders expect the agreement to help ease downward pressure on global economic growth.
Additionally palladium is produced in only a few countries. 80% of palladium’s global production is by Russia and South Africa (approximately 40% from each country). In January, South Africa announced its November production of platinum group metals fell year on year by 13.5%. Most palladium is an extracted byproduct from the mining of platinum and nickel. Because palladium is a byproduct of the mining of these two metals, its production is directly tied to their price. If demand is high for platinum and nickel the supply of palladium will naturally go up. Since the price of platinum has not been strong over the past year (only up 6%) the mining demand is not there.
In short the reason for the price increase in palladium is due to demand, it continues to out strip the supply. The amount of the metal produced in 2019 was below global demand for the eighth year in a row. This production will likely be low due to the special nature of it being a byproduct to other metal mining. Because the market for the metal is small investment has a bigger impact on the price than more widely traded metals like gold. This allows an investor in palladium to make significant gains like the amazing returns seen in the past 30 days.