Palladium Rises on Supply and Demand Concerns as Investors See Potential for Palladium over $1,000/oz Again

Gold

Gold fell 1.1% yesterday and silver by 1.5% as expectations regarding the scale of QE2 were eased back to the $1 trillion to $2 trillion mark and assertions that the money printing would be done on a more gradual basis eased concerns. The dollar’s weakness today is leading to tentative strength in the precious metal markets.

Gold is currently trading at $1,327.95/oz, €959.02/oz, £836.02/oz.

The ongoing debate regarding precious metals manipulation took a new turn as JPMorgan Chase & Co. and HSBC Holdings PLC were hit by two lawsuits yesterday by investors claiming that they manipulated silver futures and options prices in violation of US antitrust law. The banks are being sued due to allegations that they had conspired to drive down silver prices, reaping an estimated hundreds of millions of dollars of profits. The lawsuits increase the possibility of a short squeeze leading to even higher silver prices. Palladium remains near its 9 year high at $621/oz (see below).

Silver

Silver is currently trading at $23.70/oz, €17.12/oz and £14.93/oz.

Platinum Group Metals


Palladium – 10 year (Weekly). Click on image to view full size.

Value buyers are again looking at the relatively small palladium market and seeing the opportunity of further price gains. The fact that palladium remains well below its nominal high of nearly 10 years ago ($1,110.50/oz on a closing weekly basis seen on 26/01/10) is enticing hedge funds and investors.

Royal Bank of Scotland Plc said in a report today that platinum supplies may exceed demand through 2014 while palladium’s shortage will drive "significant price gains out to 2014."

Scotiabank economist Patricia Mohr Tuesday picked palladium as a "commodity pick for 2011".Palladium (white) and Gold (orange) – 10 year (Weekly). Click on image to view full size.

Analysts agree that there are very favourable supply and demand fundamentals with rising catalytic converter demand in China and other emerging markets and yet there are increasing supply constraints, which should lead to higher prices.

Swiss palladium stockpiles are declining and government’s stockpiles of palladium in Russia, accumulated over 50 years when it was mined as a byproduct for which little use could be found, may have been exhausted. Importantly, Russian government sales have added about 1m ounces of palladium supply annually in recent years.

Palladium looks undervalued versus platinum and gold at the moment in time but it is a volatile metal and should only be invested in by those with an appetite for risk. It may be overvalued in the short term as it is up nearly 52% year to date (versus silver’s 39% increase and gold’s 21% increase) but the long term fundamental look very sound.

Platinum is trading at $1,677.85/oz, palladium is at $623/oz and rhodium is at $2,225/oz.

Mark OByrne

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