Talking Points

- The palladium market is small and illiquid so sharp setbacks are always possible.

- However, the price’s rapid advance to its highest level since February 2001 can be justified by tight supplies and rising demand for the precious metal.

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The price of palladium has surged in recent months to its highest level for more than 16 years as robust demand has met tight supplies of the precious metal, which is used principally in catalytic converters for petrol/gasoline-engined cars/autos.

Chart: Palladium Price, Monthly Timeframe (1986 – 2017)

Palladium Price Surge Well Supported by Fundamentals

In Europe in particular, petrol engines have become more popular and diesel engines less so as concern grows about emissions from the latter, which tend to use platinum rather than palladium in their catalytic converters. In addition, car sales in China are growing robustly and hybrids, which run on both electricity and petrol rather than diesel, are becoming more common. In addition, supplies – principally from Russia and South Africa – are tight.

As a result, the price of palladium overtook the price of platinum in late September and palladium is now trading well above the $1,000/ounce level.

Chart: Palladium Price, Daily Timeframe (2017 to Date))

Palladium Price Surge Well Supported by Fundamentals

Chart by IG

The market for palladium is small and illiquid so there is always a risk of a sharp short-term correction but if current trends continue the price could yet advance further. The key is to watch car sales data closely as higher sales of petrol-engined cars and hybrids should continue to spur demand.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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