Palladium’s Turn to Shine

-Dugald Malcolm, Montreal, Canada

Despite recent pullbacks, 2011 has proved to be a good year for commodities thus far. The S&P Goldman Sachs Commodity Index has had a 12% gain year-to-date, and the precious metals have certainly been no exception.

As you can see from the chart below, silver has managed to have an impressive, if volatile year. With a 25% gain, it has out done its big brother, gold, which has put in just under an 8% gain so far. Palladium has also put a gain this year, with a performance just ahead of 3%. Meanwhile, the laggard of the bunch has been palladium, with a loss of just under 3% for the year.

Palladium is sometimes forgotten as being part of the prestigious precious metal club. Of the nine precious metals, there are only four of which that are designated with currency codes from the International Standards Organization. Like the code “USD” for the U.S. dollar, palladium, gold, silver and platinum have also been assigned codes to differentiate them from other official world currencies. Those codes are XPD, XAG, XAU and XPT respectively.

Despite keeping rather famous company in the currency club, palladium still tends to have the same problem as Rodney Dangerfield, in that it just doesn’t “get no respect.” That may all soon change, however, according to recent analyst reports.

A major palladium shortage is being forecasted by the experts, the extent of which has not been seen in thirty years. The main industrial use of palladium is in catalysis, and the most popular use in catalysis is in the fabrication of catalytic converters by the automobile industry. These converters are used in all but 5% of cars produced.

Experts are forecasting significant growth in car demand, especially within emerging markets. Despite the shut downs of automotive plants in Japan that have caused a short-term reduction in demand, Barclay’s Capital is still forecasting autocatalyst demand for the year to actually increase by 5.47 million ounces, the highest in over a decade. The increase in demand will be compounded by the significant drop in supply of 6.78 million ounces, as miners continue to dig deeper and deeper in attempts to find more deposits of the precious metal. The result is most certainly higher prices to come.

In a recent survey of 24 analysts and traders conducted by Bloomberg, the median guess for where palladium prices are headed by the end of the year is an increase of 23% to $955 an ounce. If they are right, that would represent a new decade high. With an increase in demand and sever supply shortage, it might very well be palladium’s turn to shine.

Average rating
(0 votes)