Will Palladium Continue to Soar in 2018? – Introduction

Palladium is a metal classified as platinoids together with five other metals: ruthenium, rhodium, palladium, osmium and iridium. The metal is found mostly in South Africa and Russia.

Palladium is mostly used as a catalytic convertor in the vehicle manufacturing industry. It is used in a similar manner to that of platinum because of its dense characteristics.

As shown below, palladium has rallied in the past ten years with most of the gains coming in 2017.

Palladium Futures

 

Palladium is also a precious metal which many people own for its store of value but not in the same measure as Gold. As a result, palladium tends to do well when the economy is doing well while gold does well when the economy is struggling.

As shown below, in the past three years, the price of palladium has surged by 36% while that of platinum has dropped by 29%.

In the chart above, it is clear that the price of palladium has always been cheaper than that of platinum. This changed in September last year when the price of palladium became more expensive.

As mentioned above, manufacturers tend to prefer quality raw materials that are fairly priced. As a result, since the quality of palladium and platinum is similar, they tend to move to one that is cheaper. This explains why palladium has surged while platinum has lagged.

In 2018, the price of palladium will depend on three things. First, it will depend on the economic growth around the world. A faster economic growth could mean more demand for cars which could mean more demand for palladium. This is also true on manufacturing growth. Higher PMIs could mean more demand for palladium.

  • The second factor could be manufacturer’s response to palladium which is currently cheaper than palladium. The question is, will manufacturers opt for more expensive palladium or move on to platinum which accomplishes the same goal. Chances are that they will move to platinum which could slow the demand for palladium.
  • The third factor is on consumer behavior. In 2017, positive reports on electric vehicles have put vehicle manufacturers on edge. Estimates from top research firms continue to show that people will shift to electric vehicles. In additions, countries like Germany, China, and UK have announced their plans to phase out combustion engine vehicles. Therefore, more adoption of these cars could mean reduced demand for palladium which could reduce its price.

Remember, palladium is usually found in South Africa and Russia where cost of doing business is increasing. Couple this with the fact that the metal is found deep inside the earth’s crust which requires more and more digging. While technology has made digging easier, it has not helped in more discoveries.

In the past, a successful strategy has been finding the best performing financial instruments during the year and short them and then buy the underperforming assets. This strategy has worked for many investors in the past.

As a palladium trader, you should pay close attention to manufacturing data, current trends, and also, the price of platinum.

Will Palladium Continue to Soar in 2018? – Useful Tips:

 

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