Palladium Surges Post-Brexit

July 27th, 2016 by

With all of the attention on the admittedly impressive performance of silver prices and gold prices this year, you may be surprised to find that palladium has actually outpaced both metals over the past month.

Brexit Aftermath Recap

Brexit flamesMuch of the world was shocked to awaken on June 24th to the news that British citizens had voted to pull their country out of the European Union. Although it has since become clear that the economic and financial impact of the decision will not immediately be felt, the aftermath of the Brexit vote was pure calamity.

In response, stock markets around the world plunged for two straight days; the British pound sterling lost roughly 13% of its value (from which it has yet to recover); and the media fretted that the unprecedented move would spark various other votes around Europe that would ultimately disintegrate the EU entirely.

Another consequence of this momentous event was a renewed rally for the precious metals. Worried investors flocked to gold as a safe haven from the upheaval in the markets. Similarly, silver outperformed during the Brexit aftermath, building upon its already impressive year-to-date gains.

Palladium Powers Forward

However, gold and silver weren’t the only beneficiaries of the uncertainty caused by Brexit in the precious metals group. Platinum and palladium both have seen particularly strong demand in the wake of the vote, but they have been largely ignored by the financial news media. This is especially true for the latter.

palladium performance

As the chart above shows, platinum and silver have each gained over 10% during the last month or so of trading while gold has added roughly 5%. By comparison, the palladium spot price has rallied better than 20% over that same period. It is now trading above $700 per ounce for the first time since last October.

In general, the Platinum Group Metals (PGMs) are more sensitive to the undulations of the global economy than gold due to their crucial use in the catalytic converters of automobiles. Sometimes, however, they do see safe haven demand when the markets perceive an overcrowding in gold or silver an are looking for a precious metal alternative.

Source: Glogster.com

Source: Glogster.com

The auto industry has nonetheless buoyed palladium. According to Bloomberg, output from the automobile sector in China caused palladium imports to rise by 30% during the first half of 2016. The U.S. auto industry has likewise been one of the big climbers in recent years thanks to the recovery of the country’s leading car manufacturers.

Moreover, Philip Klapwijk, the managing director of Precious Metals Insights, says that palladium has a “substantially greater” supply deficit than its PGM cousin platinum. This undoubtedly points toward steeper price gains when you couple rising demand with a tight supply. Russia and South Africa are far and away the biggest annual producers of palladium, with Canada and the United States coming in at a distant third and fourth, respectively.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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