Commodities | Jul 24 2006
By Greg Peel
Since July 2005 the precious metals markets have had a rollicking time, rallying to highs in May, correcting, and rallying once more. While the chart patterns have been largely the same, Barclays Capital points out that while gold is now 52% higher, silver 59% and platinum 43%, palladium is significantly higher at 81%.
Is this too much?
There are two important points to consider about palladium. Firstly, it is rare and is fought over by only specific consumers in the autocatalyst and jewellery markets. The second is that it can be easily substituted for, or by, platinum.
Over time the platinum and palladium prices tend to run in a loping converse cycle. If one becomes a bit too expensive the other takes over. At the moment, platinum is in favour, as indicated by its price of US$1220/oz compared to palladium’s $309/oz. But the two have been the other way around in earlier times.
As all precious metals have followed gold along its recent volatile path to varying extents, it would appear platinum may have been dragged up to levels which breach substitution triggers. Hence it is not a huge surprise that palladium has outperformed.
Barclays suggests palladium long positions will likely hang in there on this substitution basis. This would suggest a tightening of the platinum/palladium spread, rather than a specific pullback in the palladium price.