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Further gains to come for Palladium?


Michael Pinson, News Editor
2 Jul 2020, 3:34 p.m.


Palladium is the one of the most expensive traded metals, and the current highest of the four most popular bullion metals. On February 23rd, before coronavirus decimated its industrial demand, it reached a record $2,879 or £2,333.82 an ounce – nearly three times the price of platinum.

Alongside platinum, palladium is an investment metal that is largely driven by its industrial applications, and the coronavirus outbreak has had a significant impact on its price in the past three months.

All three precious white metals – palladium, platinum, and rhodium – are used in catalytic converters and emissions purifiers. Because of its extreme scarcity and cost, rhodium is least used. The motor industry's choice between palladium and platinum therefore usually comes down to availability and price, and palladium has enjoyed significant price rises thanks to its continued use in recent years.

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Palladium 12-month chart

Palladium price per ounce in GBP, dropping significantly in March when lockdowns began across Europe.

After the record high in February, industrial lockdowns as a result of the coronavirus created a dramatic plunge in the price of palladium as seen on the chart above. Although some industrial production has resumed, many industries have seen demand slump, and the car industry is one such industry. As such, palladium has recovered slightly, but remains below pre-pandemic levels.

Commerzbank is a leading German international commercial bank with both small private and major corporate clients. Its analyst, Daniel Briesemann, said of the current palladium market it is, 'more or less balanced due to the very low demand from the automotive industry, and that is probably keeping a check on prices.'

As with all markets currently, everything depends on how the coronavirus pans out. The reduced demand for new cars is believed by some to be likely to continue for years. With the global economy set to enter the worst recession since WWII, many people will put off buying a new car, or turn to the second hand market to save money. In this case palladium could see further subdued prices with fewer new cars being made.

Others believe that a return to normal industrial production will see palladium return to the previous record levels. TD Securities is one of Canada's leading investment dealers, providing capital market services to government and corporate institutional clients. Last month it predicted, 'Palladium spot prices will be supported as industrial demand recovers and the industry works through built-up inventories, amid a structural shortage which will remain in place for years to come.'

Indeed, palladium’s supply shortage has been one of the key reasons for its high price, and this will only have been exacerbated by the shutdown and ongoing disruption of some mining operations. Palladium may therefore offer further opportunities in the years ahead and could be an alternative metal for those looking to further diversify their portfolios from gold and silver.

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