Where Next for Platinum and Palladium?
Palladium and platinum have become the toast of the precious metals market recently, with both metals hitting record highs. We take a look at their recent performance and outline the factors which could influence future direction.
Over the past year, palladium prices have almost doubled, while platinum has gained 21%. Investors have taken note and recent months have seen a collision between industrial metal buying and base metal investment as funds increase their holdings of both commodities.
While gold and silver are popular in straitened times, palladium and platinum are closely connected with car production – a key indicator of economic growth. Both metals are used in the production of catalytic convertors, and this has led to steady price increases.
Catalyst for growth
Palladium is used for cars sold in the US and Asian markets – and growth in these regions has driven its success. Increased car sales in China fuelled demand for the metal in 2010 and are set to do the same over the coming months. With the US automobile market picking up, and demand for cars rising in India, analysts predict that palladium will reach further highs, perhaps even touching $1000/oz. [1]
Platinum is more closely linked to the European market, where platinum jewellery is popular and cars tend to be produced with platinum catalytic converters. Platinum saw a slightly more modest rise in 2010, but analysts are confident that it will have a bullish year as European economies continue to recover.
Supply and demand
Supply issues could well put pressure on platinum and palladium prices over the coming months. Palladium supplies are heavily reliant on Russian state stockpiles, and a recent decline in shipments has led some analysts to believe stocks are running low. This could lead to a huge hike in prices.
At present, 75% of platinum is mined in South Africa, where a stronger rand is putting pressure on prices. There is also uncertainty about whether leading producers will be able to meet their production targets. Recently, LGT Capital Management raised its 2011 average forecast for platinum by 3.5% to $1,888/oz and prices could soar higher still. [2]
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Sources: [1], Daily Telegraph Precious Metals Supplement (Jan 2011); [2], Benzinga (11 Jan 2011)
Updated: 11/02/11
