Palladium Price Lags Gold

Unlike gold, which has rallied recently, the price of palladium has underperformed other precious metals over the past few months. Although palladium wsa one of the best performing commodities last year, signs of an end to its rapid price recovery are growing. According to the latest report of the German precious metals trading group Heraeus, Exchange Traded Funds (ETFs) got rid of nearly four tons of palladium in the last four weeks. While global demand for palladium bars for investment purposes has slightly increased, the total volume remains at relatively low levels.

Palladium was one of last year´s biggest winners after the global automobile industry had significantly recovered again. While the global financial crisis caused a heavy setback in worldwide car production numbers, the industry was able to rebound in the last two years. Even if sales figures in many regions could not reach their pre-crisis levels again, palladium demand among industrial end-users turned out to be strong. This development contributed to palladium price rally, after hitting a low of $161 per ounce in the fall of 2008. Palladium reached a new record high of $855 per ounce in February of 2011; more than a fourfold increase compared to its bottom at the height of the global financial crisis.

In addition, the rally in the palladium market has been fueled by growing concerns over future supply shortages of the white metal. After the mining giant Norilsk Nickel warned of depleting Russian state inventories of palladium in autumn 2010 followed by strikes in South Africa, the largest producer, this contributed to a tightening of the supply situation in global palladium markets. However, the resulting fears among global capital investors have given way to greatly increasing concerns over a new recession in the United States and a significantly slowing global economy in recent weeks. A shrinking demand from the automobile industry would have a highly negative impact, which is primarily used in the manufacture of catalytic converters.

The report from Heraeus also stated that sales in Europe´s automotive sector decreased by 2% from January to July of 2011. While Germany´s car market has proven to be a stabilizing factor for European car sales in the respective period, new vehicle registrations severely fell in those countries most affected by the region´s sovereign debt crisis. Spain, Italy and Great Britain suffered a slump of 24%, 13%, and 6.7% respectively. While vehicle sales in the U.S. rose by 11% compared to July 2010, new car registrations only increased by 1% month-on-month. Similarly in China – the world´s fastest-growing car market – vehicle sales recently posted a drop. Should this situation not change soon, the risk for a continued decline in palladium prices is high. Thus, investors should be extremely cautious were the technically relevant support level of $720 per ounce to be lost.