Palladium prices hit a record on Tuesday, spurred by persistent supply worries, while gold held a narrow range as investors awaited policy signals from the U.S. Federal Reserve’s meeting this week.
Palladium hit a record of $2,962.50 per ounce earlier and was up 0.8 per cent at $2,948.69 per ounce by 1:02 p.m. EDT (1702 GMT).
“What we’re seeing here in palladium is a market that’s in a deeper deficit than many had expected earlier in the year… That’s going to continue to fuel higher prices in the near term,” said TD Securities commodity strategist Daniel Ghali. At this rate, palladium can trade north of $3,000 by next month, he added.
Prices of palladium, used in catalytic converters to clean car exhaust fumes, have risen 20 per cent so far this year. A Reuters poll returned a higher forecast for palladium after flooding at the biggest supplier, Russia’s Nornickel , worsened a shortage.
What’s fuelling the rally in palladium?
The most valuable metal
Palladium, a lustrous silvery-white material, is the most valuable of the four major precious metals (gold, silver, platinum and palladium). Up about 19 per cent, so far this year, palladium prices touched an all-time high of $2,941 earlier this week. According to commodity analysts, an acute shortage has driven prices to record highs this year. “Pent-up demand in the auto sector is likely to fuel strong demand for PGM (Platinum Group Metals)-rich catalytic converters amid rising restrictions on emissions,” ANZ analysts wrote in a note.
Where is palladium used?
Palladium is a key component in emissions-reducing devices for cars and trucks. A vast majority of the metal is used in catalytic converters in car exhausts, where it helps turn toxic pollutants into less-harmful carbon dioxide and water vapor. The metal also finds place in electronics, dentistry and even jewelry.
Why is palladium so expensive?
The price of the deficit-stricken metal has gone up more than six times in the last five years. While some obscure metals like rhodium are still more valuable, palladium has mainly traded above gold since 2019. As governments across the world are tightening pollution-related norms, the demand for emissions-reducing catalysts, in which palladium is used, has gone up sharply. According to a Bloomberg report, in Europe, consumers are buying fewer diesel cars, which mostly depend on platinum, and choosing gasoline-powered vehicles, which use palladium, following revelations that makers of diesel cars cheated on emissions tests and as concerns about diesel pollution intensified.
Why is palladium in such short supply?
Mined primarily in Russia and South Africa, palladium is extracted as a byproduct from mining of other metals like platinum or nickel. Palladium could remain heavily undersupplied in 2021 even with Russia’s Nornickel having scaled back production losses, said Standard Chartered analyst Suki Cooper. She forecast average prices of $2,800 per ounce in the second quarter, saying it was likely to be the “tightest period.”
How will the growing push for EVs impact palladium?
Palladium has no place in an electric vehicle. As the world shifts to EVs, the demand for palladium may fall gradually in the years to come. However, the metal is used in hybrid vehicles.
Spot gold inched 0.1 per cent lower to $1,778.32 per ounce with investors focusing on the Fed’s meeting. U.S. gold futures were down 0.1 per cent at $1,778.
“Gold investors will be watching for any indications from the Fed as to whether they’re seeing any longer term sustainable inflation,” said Jeffrey Sica, founder of Circle Squared Alternative Investments.
The acknowledgement of inflation and the anticipation that there will be more could help gold break above $1,800, Sica added.
While gold is considered a hedge against inflation that could follow widespread stimulus, elevated Treasury yields have dulled the non-yielding bullion’s appeal this year.
No major policy changes are expected from the Fed meeting ending on Wednesday, but investors will pay close attention to Chairman Jerome Powell’s economic outlook. Analysts have slashed their gold price forecasts, with many believing a return to last year’s record highs is unlikely as the economy recovers. Silver rose 0.5 per cent to $26.33 per ounce. Platinum was little changed at $1,251.26.
