Seeking Alpha

Palladium Is The New Gold

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Includes: AAAU, BAR, DGL, DGLD, DGP, DGZ, DZZ, GHS, GLD, GLDI, GLDM, GLDW, GLL, IAU, IAUF, OUNZ, PALL, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: MetalMiner
MetalMiner
Commodities, ETF investing, base metals

Original Post

By Stuart Burns

After surging more than 50% in the last four months, palladium - that previously little-discussed Platinum Group Metal (NYSEARCA:PGM) - reached $1,255.12/ounce, surpassing gold for the first time in 16 years last week, according to The New York Times.

Driven by both investor and trade interest, palladium appears to be responding to strong demand from the auto industry (from which 80% of its consumption comes).

A swing to petrol engines has boosted palladium demand, in preference to its sister metal, platinum, which is used more in diesel engines. The metal is also used in alloys for products like surgical instruments, dental alloys, and certain electronic applications, The New York Times notes, but it is a combination of catalyst demand and constrained supply that has caused shortages, leading some dealers to run out of metal.

According to the report, citing consulting firm Metals Focus, demand for the metal for catalytic applications will reach a record high of 8.5 million ounces this year. Tighter emissions legislation and the switch to petrol cars are driving surging demand, such that consumption is expected to outstrip supply by 1.2 million ounces this year, with the market remaining in deficit next year.

Miners have found it difficult to keep up.

Mines in South Africa, in particular, have faced worker disruption and are said to be struggling to cover costs, as PGM prices generally remain depressed but mine inflation challenges profitability and deters investment.

The world's largest producer is Norilsk Nickel (OTCPK:NILSY) in Russia. Buyers were heartened by the firm's announcement last week that it plans to invest $12 billion in mine expansion over the next five years, according to The New York Times report. Supply may come onto the market just as the long anticipated but equally delayed arrival of electric vehicles finally begins to become a reality.

But for now, the metal seems a good bet for 2019, providing vehicle sales do not falter. Investors have driven Palladium ETFs up 12.3% this year, even as gold has fallen by 6.4%.

The big money has been made, but palladium's fundamentals remain better than gold's - providing global growth and vehicle sales hold up in 2019.