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Why The Price Of Palladium Is Headed Higher

September 24th, 2013

PalladiumSasha Cekerevac: With the recent shock of the latest Federal Reserve meeting now beginning to subside, the implications can now be extrapolated. By holding its foot on the accelerator, the Federal Reserve is opening the door to further price appreciation in many asset classes, including precious metals.

One of the precious metals I like is the little-mentioned palladium. While many of the precious metals covered by the mainstream (i.e. gold and silver) have been under pressure all year, palladium is actually positive for the year. Because so much of palladium is used for industrial purposes, the negative investor sentiment seen with other precious metals did not have as much of an impact on palladium.

The one thing you have to remember is that the precious metals that have a lower level of industrial use, like gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV), are susceptible to greater swings from investor sentiment (just look at last Wednesday’s $60.00 gold spike and the subsequent $35.00 decline Friday), because the industrial purchasers are not there to support them. In sum, investor sentiment can overtake the price of these precious metals far beyond fair market value.


However, the inaction by the Federal Reserve is positive for precious metals like palladium for several reasons. One especially noteworthy reason is that this move will boost the automotive industry. To keep the easy money flowing, the Fed will also keep interest rates artificially low, which will, at least over the short term, boost sectors that rely on cheap financing to draw in more consumers. As you may or may not know, car sales are booming in America. Plus, we’re now seeing European car demand beginning to pick up, in addition to the continued growth of Chinese vehicle sales.

While investor sentiment for some precious metals might oscillate, there is no choice for car-makers when it comes to palladium, as the commodity is needed for manufacturing their products. And with China beginning to crack down on emissions, the automobile makers there are being forced to bring their catalytic converters up to first-world standards—which means greater demand for palladium, since approximately half of all palladium is used in catalytic converters.

On top of technological innovations that use precious metals such as palladium, including fuel cells as well as groundwater treatment, these industrial uses mean that part of the price is determined from actual demand for commercial purposes and not just investor sentiment that is using precious metals for speculation purposes.

Palladium Spot Chart                

Chart courtesy of www.StockCharts.com

Of the major precious metals, palladium has held up best during this year. While investor sentiment has hit other precious metals, as I noted earlier, palladium is up approximately five percent since the beginning of the year.

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NYSE:PALL, NYSE:PPLT


 

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