Wednesday 31 January 2018

End of the Palladium surge?

The Palladium price surpassed that of Platinum late September. Any precedent dates to the beginning of the century. Since October 10, Palladium has been more expensive than Platinum, widening the gap throughout the rest of 2017.
Palladium peaked on Jan 15 at $1122/Oz (bid-price at the NYMEX close). The price gap with platinum topped at $144/Oz on the first trading day of 2018, with Pt at $942 and Pd at $1086. In January, Platinum has been a better investment, adding $52 to a $1000 round close now on Jan 31st.

Despite starting 2018 rallying, the Palladium surge ended by mid January. The metal lost almost $100/oz to close the month at $1023. The Pt-Pd price inversion gap is down to $23.  Will we soon see the end of this anomaly?

Palladium (blue graph) in its uptrend since June 2017, whereas (orange graph) Platinum has been moving sideways.
The resulting Platinum-Palladium price is shown in dark red. 
In comparison to non-ferro base metals in general, but also to the other precious metals, the gold price is much less volatile. As such it makes sense to compare other metals to gold in a ratio.  The Au/Pt ratio tells how many ounces of platinum an ounce of gold buys and similarly for the Au/Pd ratio. The below chart shows that Palladium got more expensive vis-à-vis gold over the past months.
The Platinum to gold ratio has been trending sideways, implying that platinum moved in closer relationship relative to gold.

Gold to Platinum ratio (blue) and gold to Palladium ratio (orange)
The lower dynamic range of the Au-Pt ratio over the past seven months (since early May-2017) cannot be extrapolated to the past. Only since 2015 platinum has constantly been less expensive than gold. In a historic perspective this almost seems anomalous. But is this indeed temporary or will the palladium prices exceed that of platinum for months or years to come?  The more the price gap gets wider, the more probable it is for palladium to remain consistently more expensive than platinum.

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