Forget gold: Palladium is up more than 50pc, but can it last? — Scotiabank

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London. — Palladium has been the clear shining star in the precious metals sector, with the price pushing to a 17-year high in the final trading week of the year.

March palladium futures last traded at $1 045,65 an ounce, up more than 50 percent since the start of the year. The metal’s performance is head and shoulders above gold, which, heading into the new year is up almost 12 percent since January; February gold futures last traded at $1 289,90 an ounce.

Historically, palladium trades at a discount to platinum; however, its stellar performance has pushed its price premium to its highest level since 2001.

While there is room for palladium to push higher in 2018, analysts at Scotiabank said, in a recent report, that it will be difficult for the market to maintain its breakneck momentum.

“Despite a promising fundamental outlook, however, much of palladium’s recent outperformance has been fuelled by surging speculative activity, which will need to normalize over the coming year as investors take profits from this latest upswing,” they said in a recent report.

The biggest factor for palladium in the coming year continues to be auto demand. The precious metal is a key component for catalytic converters, which are used to scrub exhaust from gasoline-powered engines. Platinum is the primary metal used in diesel engines.

Despite Scotiabank’s cautious outlook for palladium, analysts see positive demand fundamentals for palladium.

“Record global auto sales and increasingly stringent environmental regulations — which increase the volume of catalyst required per vehicle — have kept palladium demand growing at a healthy pace,” they said.

“This industrial strength is expected to continue, with all major developed and developing markets experiencing synchronised growth in 2017 for the first time since the Global Financial Crisis.”

At the same time, the analysts see lower mine supply in 2018. Palladium is a byproduct from platinum and nickel projects, which the bank noted have declined in recent years as both those metals have seen weak prices.

“Nickel prices have languished under a decade of surplus production and the metal’s mountain of accumulated inventories will need to be worked down before new nickel mines are sanctioned that could alleviate some of palladium’s current tightness,” they said.

However, a major negative factor for palladium’s supply-and-demand fundamentals is a massive above-ground supply, Scotiabank said.

“Despite a 20 percent drawdown over the past five years, stocks remain high relative to the demand,” the analysts said.

Scotiabank did not provide a 2018 price forecast for palladium; however, the bank is relatively neutral on gold as it sees prices ending the year around $1,300 an ounce. — Kitco News.

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