The price of palladium, hitting $865 an ounce on Friday, made a notable record. It hasn't, as Reuters notes, traded so high since February 2001. What's more, it also surged by highs it hit back in 2011 when it traded in the mid-$800s an ounce.
Palladium's performance sets it apart from platinum. While platinum prices have been strong lately, reflecting the aftermath of the platinum sector strike in South Africa, their movement pales in comparison to palladium. Platinum, which recently broke $1,500 an ounce, neared $2,000 an ounce back in 2011.
Driving palladium, as platinum, are several factors. Of course the prolonged strike in South Africa grabbed headlines for the past half year, and although since resolved, it's impact on the palladium and platinum sector will be felt for some time to come. South Africa, number one in platinum production in the world, is number two in palladium, and the strike ate into stockpiles of platinum group metals. Further adding to supply concerns, there has also been the overhang of additional – and more broad – sanctions against Russia, another top palladium producer, given its widely condemned invasion of Crimea in Ukraine.
Meantime, investor interest in palladium has surged, soaking up millions of ounces of palladium from the market. What's notable here is that such a source of demand is relatively new, and thus the palladium market, as gold, must now contend with a novel force that can affect prices. While the price is on the upswing for now, it will be important to consider the downside of ETF palladium holdings were they to sell off at some point as they did for gold back in 2013. The scale of sell off took gold markets by surprise and you have to think the same is true for palladium, which is a much smaller market. For now, however, the direction is up.
Then there's old fashioned demand for palladium in catalytic converters. Palladium's strong move up also reflects a U.S. economy that has emerged after the 2008-2009 crash. That cut drastically into palladium demand, but now car buying is quite strong again in the U.S., along with an economy, if perhaps not firing on all cylinders, that is rebounding. Car sales in June, the WSJ recently reported, hit a pace not seen since 2006. Annualizing June sales, auto sales would be 16.98 million. Actual sales in the first half of the year were strong, at 8.2 million, up from the same period a year earlier.
Other demand indicators are also looking quite strong in the U.S. and beyond (or at least not totally moribund). For example, Patricia Mohr, Scotiabank's commodity expert, singled out the price of zinc, recently trading over $1/pound, given stronger construction and car production in the U.S. in a recent research note.
"A pick-up in China's Flash Purchasing Managers' Index for Manufacturing in June to 50.8 from 49.4 in May and a broad-based improvement in U.S. industrial activity (+4.3% yr/yr, centred in autos, business equipment & materials) lifted market sentiment," she wrote.
That's a positive indicator for palladium as well.
