The palladium market hit another record settlement on Wednesday as the metal exchanged hands for $1241 per-ounce. Price action is once again particularly strong, with the market rising by 1.31%. Today’s rally in palladium has propelled it to a higher price than gold for the first time in 16 years.
What’s Behind the Bullish Price Action?
Palladium is seeing strong demand, and the market’s supply/demand equation is currently the strongest across the major precious metals markets. A recent article from marketwatch.com quoted analysts from precious metals consulting firm Metals Focus as saying “In the near-term, palladium’s superior supply-demand backdrop could see it surpass gold.” They added that the 2018 estimated supply of 9.7 million ounces is the “second highest total this decade.”
One of the primary factors fueling demand for the metal is the auto industry. Palladium is used in the production of catalytic converters for pollution control, and 2018 demand for the metal in this industry could reach a whopping 8.5 million ounces.
With strong recent performance, the metal has drawn significant investment and thus could be vulnerable to profit taking. In addition, numerous symptoms of a slowing global economy have been seen in recent months and a further slowdown next year could potentially put a dent into demand.
The gold/palladium spread, or difference between gold and palladium, has been tightening and palladium is now trading at a premium to gold for the first time in about 16 years. As of Tuesday, palladium traded at a discount of about $12 per-ounce compared to gold. In early action today, the spread not only reached parity but palladium is now trading at a premium of several dollars per-ounce over gold, making it the most expensive precious metal. Both gold and palladium showed some solid strength in price action on Tuesday, and both are currently in uptrends on the daily charts. In early action today, however, palladium is definitely taking the lead as it climbs while gold prices are flat.
Both metals may see price action fueled by the dollar, economic data releases and overall risk appetite or aversion and may at times show a positive correlation. As the palladium market probes higher into fresh-all time high territory, there is no chart resistance to stop the market in its tracks. Although the rally may run out of steam at some point, the market does have the potential to make a significant leg higher from current levels if demand stays constant. The gold market, on the other hand, will likely face an important test in the coming sessions as it looks to break through upside resistance in the $1245-$1252 region.