There’s no doubting the impressive rally we’ve seen in gold lately. After a dismal 2013, the yellow metal has bounced back. As of this writing, it has closed at a high of around $1,305. Debate about where gold will go in 2014 is still intense, but many indicators are pointing to a better year than 2013.
Gold is and always will be a good precious metal to own – but what about the lesser-known and talked about platinum and palladium?
Since the beginning of the year, both metals have rallied as well, with platinum climbing to over $1,420 and palladium to around $800, its highest level in nearly a year. Analysts at Noruma Securities explain that all three metals appear to be “breaking out.”
Platinum Supply and Potential
While gold has seen an impressive rally so far this year, so have platinum and palladium. Although they share some similarities, each market has different factors that determine price movements. Therefore, a market event that affects gold may not affect platinum and palladium to the same degree.
That’s not to say the markets are exclusive of one another – when gold seemed to be dropping like a stone throughout most of 2013, platinum went down, too. However, its decline wasn’t nearly as steep, and palladium traded pretty much “sideways” or flat throughout the year.
Platinum and palladium have their own supply and demand issues. For example, according to data from Casey Research, both metals are currently experiencing significant supply deficits. In their report from the end of November 2013, Casey Research concludes this “…supply/demand imbalance will likely continue for at least several years, perhaps a decade.”
Unlike gold, there aren’t much above-ground supplies of platinum and palladium. New metals have to be mined to satisfy its ever-increasing demand as both an investment (bullion, ETFs) and industrial metal. If all the gold mining were to cease today, there’s at least a few months of supply above-ground to satisfy demand.
That isn’t true for the platinum group metals (PGMs).
Increased Demand and Instability
The two primary mining regions, which account for nearly 80% of world production, are currently experiencing instability.
Labor strikes in South Africa, which supplies around 40% of the world’s palladium supply, have been ongoing for over 6 weeks and show no sign of ending soon. Ukraine and Russia are in the other PGM-rich region of the world, which of course has been experiencing political unrest and is teetering on the brink of all-out war.
On the demand side, several factors are colliding to make for the perfect storm in any commodity market – exploding demand and shrinking supply.
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Terrible air pollution in China is prompting the need for catalytic converters, which use palladium in most cases. Also, low interest rates for auto loans are encouraging consumers to trade in their older vehicles for newer ones, which is keeping auto demand relatively robust both in the U.S. and in China.
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Platinum has been an increasingly popular choice for jewelry in India and around the globe.
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Demand for platinum bullion and other investments is on the rise too. The U.S. Mint recently announced it would begin re-issuing the Platinum Eagle, while holdings in physically-backed exchange traded funds (ETFs) have hit record highs.
When you’ve got this combination of supply shortages but strong demand, along with geopolitical and labor tensions in the case of Russia/Ukraine and South Africa respectively, you’ve got the recipe for a sustained rally, whatever the investment may be.
It’s unclear as to how much platinum and palladium will rise in price this year – in all likelihood, it will be the “two steps forward, one step back” pattern where we’ll see a rally, then a fall back to a certain support level followed by another rally.
It will be interesting to see how it all plays out, but one thing is pretty clear to many analysts: PGMs are expected to perform quite well this year, possibly stronger than gold, unless there’s a significant change in the issues described above.
Do you think the PGM group metals will perform well in 2014? If so, will they outperform gold like some analysts believe?
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