Palladium Continues to Shine

Sprott Group's picture

Palladium Continues to Shine

One of the least well-known precious metals continues to shine brightly this year - palladium.

The Federal Reserve released its Open Market Committee minutes last Wednesday which highlighted differences of opinion among the 19 policymakers at the Federal Reserve about how long the unlimited quantitative easing program will continue. What did they say? "A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the (policy-setting) committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred." With this potential removal of liquidity from the markets at some point in the future, perhaps as early as the end of 2013, the precious metal sectors were hit hard. Gold spot fell almost $50 dollars on an intra-day basis before recovering slightly at the end of the day. The silver spot price fell almost $1.30 over the same time period. Despite this disagreement between policy makers, the central bank continues to purchase $85 billion in bonds every month and maintain a zero-percent interest rate policy.

We like to look at the largest precious metals ETF's to gauge investor sentiment on this type of correction and last week we spotted an interesting divergence. Using data from Bloomberg, one can see a substantial drop in outstanding shares of the largest gold ETFs, but no drop in the outstanding shares of the largest silver, platinum nor palladium ETFs. So despite the negative price action in the precious metals space, these 'white-metals' investors are holding tight. In fact, when one looks deeper into the palladium market, the increase in investor participation has been substantial.

To truly understand how investors have taken to palladium, some market figures will be helpful for context. According to Johnson Matthey, total palladium supply in 2012 was 6,570,000 ounces and investor demand was 385,000 ounces or about 5% of the market. So investors have historically not been big participants in this market.

Looking forward, for 2013 the analysts we follow have forecasted investor demand between 100,000 and 500,000 ounces. So how are these predictions faring? So far in 2013 the palladium ETF's have already purchased 311,442 ounces of palladium, which puts them well on track to exceed last year's investments. If this pace continues, the impact on the market could be substantial. The other statistic that is helpful to gauge interest is futures volume. And this is where we see record activity. Aggregate open interest in palladium has exploded to represent 3,861,800 ounces or well over half of the total palladium market. Now, it remains to be seen if investors will take delivery of these ounces, but if even a fraction of investors take delivery it could have a material impact on the price of palladium.

Given all these new buyers entering the market, what could happen to the price? Palladium price forecasts are as high as $975 dollars for Q4 2013 according to analysts surveyed by Bloomberg. And remember these price targets are using investor demand estimates for 2013 that are well on track to be surpassed! So it stands to reason that if investors start adding palladium to their precious metals portfolios the price could move substantially higher.

Despite the drubbing precious metals took last week, investor sentiment for the 'white-metals' appears to be strong. Palladium is already the top performing precious metal this year returning close to 5% and, based on investor activity, its future looks bright.


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akak's picture


Using data from Bloomberg, one can see a substantial drop in outstanding shares of the largest gold ETFs, but no drop in the outstanding shares of the largest silver, platinum nor palladium ETFs.

Yet platinum is down 8% from its high on Feb. 7th, a worse percentage fall than gold and almost as bad as silver during the same timeframe.  So what holds palladium so strong, and makes platinum so weak --- whose price is moreover historically very low relative to palladium's in the first place? 

Hmmmmm .....

DoChenRollingBearing's picture

The dynamics of Pt are different from Pd in some important ways.  That would be my best guess.

DoChenRollingBearing's picture

Palladium is worth a look, especially if owners of PMs want diversity.  But, it is the least liquid yet hardest actually buy (physical) of the precious metals.  Here's my take:

If you have real savings, but no PMs: I would buy gold first, then silver, then platinum then palladium

If you own gold and also have real savings: buy the others as above

If you do NOT have much money: buy silver and 1/10th oz gold coins, forget Pt and Pd

Diversification is great, but start with gold if you are not already an owner of physical precious metals.

Fuh Querada's picture

Good advice.  1/10th ounce gold coins are real tiny buggers to store though, doesn't need much of a boating accident to lose them. I recomend 1/2 oz to friends low on savings -good size, often supplied in plastic capsules from the mint. Neither are easy candidates for tungsten gutting either.

Tango in the Blight's picture

The 1/20th oz coins are even worse, they are smaller than dimes.

DoChenRollingBearing's picture

You wrote: "Neither are easy candidates for tungsten gutting either."

+ $1600  An excellent point!  

Fuh Querada's picture

Far be it to suggest that Sprott is doing a "pump and dump" - they at least seem to be one of the straighter shops out there -  but palladium prices have been on Viagra for 6 months and it is a bit late to get in low.  The supply side is not addressed here either. Can you believe the Russians that they are running out?

Also, I well remember Sprott's repeated  predictions on King World news in 2009 that the HUI would soon be at 800.


fonzannoon's picture

something about this sprott palladium/platinum propoganda stinks.

Motorhead's picture

I may be mistaken, but I seem to recall that this is a new gig for Sprott & Co., hence, the hint of pumping, or, just "pushing" their new gig.

Eric Sprott or Frederic Mishkin (to name but one retard)...hmmmm, whom do I believe?

Smiley's picture

New "Tradition"

GMadScientist's picture

It ain't "monetary", but I love them little bars just as much as the prettier ones.

Tango in the Blight's picture

Palladium does have an ISO currency code: XPD.

And although rare there have been palladium coins:

Confundido's picture

Someone forgot to manipulate this market!

Fuh Querada's picture

No worries sport, as soon as the price action gets hot, paper supply will come out of nowhere.

Just like when platinum tried to top 1740 $ at the beginning of the month.

TideFighter's picture

Yup. I sold my phyz last week. Smackdown in sight.