From 6:30 am January 16th to 6:30 am January 17th, the palladium price rose 24 points- around $100.
The spot price of precious metals can often fluctuate. However, the palladium price has been rising steadily for the last 33 years. But, most especially in the previous six months. Yet, we have not seen such a big jump in only 24 hours.
Since 2008, the price of palladium has gone up 450%. The automobile industry mainly uses palladium for catalytic converters. Palladium helps convert harmful gases in car exhaust into less toxic substances. However, it is also useful in dental supplies, jewelry, and semiconductors in the electronics industry. However, there has been a massive worldwide supply deficit since as early as 2012. This supply shortage is expected to continue.
While the supply is short, the demand and price continue to rise. CEO of Sprott Asset Management, John Ciampalglia, claims that “palladium has been on a multi-year run that shows few signs of abating.”
Gold and palladium for the last 15 years have followed each other in price in a rounding bottom. Surprisingly, the rounding bottom seems to be breaking this year. Experts predict a bullish palladium price forecast for 2019.
WHY IS PALLADIUM SO HIGH?
- Demand: The demand for palladium continues to rise. This is despite palladium ETF holders selling off their palladium since 2014 (to the sum of approximately $2.3 billion)
- Supply from Mines: Well, there are no official palladium mines. Palladium is a byproduct of platinum, copper, and nickel. It mostly comes from Russia and South Africa. Miners are slowing down on palladium since it is a byproduct of platinum, whose prices are not doing so well
- Global economic outlook: Since palladium mainly ties into electronics, automobiles, and the dental industry, how well the economy is doing has to do with how well palladium will do.
- Cars: Larger cars require more palladium. And, higher emission standards need more palladium to use in vehicles.
So what is causing such a significant price jump? Here are a few theories.
- Europeans are turning away from diesel cars: Between increasing environmental awareness and the Volkswagon scam, more Europeans are turning away from diesel cars.
- China car incentives: China is looking to become a worldwide leader in the auto industry, as well as cut their dependence on imported oil and curb pollution. So, they are offering tax cuts for cars and subsidies for electric cars (mostly from Chinese manufacturers). Over 777,000 electric cars sold in 2017. China is expected to increase subsidies over the next year and then end them in 2020. Since electric cars use far less palladium, the demand could go down. China’s push and incentives for electric cars could push also demand lower. China is a large part of the auto market and therefore could have an effect on palladium prices in the future.
- U.S./China Trade War
- Palladium Supply: Platinum and nickel prices have been down. So, miners haven’t been mining these two metals as frequently lately. This means that palladium isn’t in supply either.
WHAT DOES THE FUTURE HOLD FOR PALLADIUM?
Experts agree for the most part that palladium will stay at a high price point through 2019, although it’s levels are expected to somewhat correct. However, that is likely true for all precious metals prices in 2019 because of the weakening U.S. dollar. Since palladium has the most robust supply and demand fundamental out of the precious metals, it is expected to stay undersupplied through 2019. The standard charter forecast deficit of 756,000 ounces will likely happen.
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