Is Palladium The New Kid On The Block?

Palladium surpassed gold and platinum and scaled $3,000 per ounce on 4th May, 2021, leaving both top seeds far behind. So, will palladium be the preferred option for investments and will we see a rise in palladium jewellery? Metal analyst Sanjiv Arole examines.

American professional boxer Leon Spinks proudly proclaimed to the world, “Ali is the greatest, but I am the latest.” This he said after he had defeated Muhammad Ali for the undisputed heavyweight boxing championship of the world in 1978 at Las Vegas.

Likewise, palladium that gained entry into the exclusive precious metals group around 2010, alongside gold, silver and platinum could also proclaim to the world that it was the most expensive precious metal since 2019.

More so, as it scaled the $3,000 per ounce at an all-time high level on  4th May, 2021. Palladium could also well claim that it is the latest leader of the precious metals basket in terms of its price. While gold’s all-time high was around $2067-75 per ounce seen in August 2020, platinum’s all-time high of $2,273 per ounce was scaled in March 2008.

Palladium not only surpassed the top two seeds but scaled $3,000 per ounce on 4th May, 2021, leaving both gold and platinum far behind. So, will palladium be the preferred option for investments and will we see a rise in palladium jewellery? Will it become the next safe haven and challenge the US dollar? Will we have a ‘palladium standard’? But, for all that we need to look at palladium a lot more closely.

Palladium (atomic number 46) is an element that belongs to the platinum group of metals. It was discovered in 1803 by an English chemist and it was only in 2010 that it was classified as a precious metal. It has very low specific gravity and has much less density than platinum. It is 30 times rarer than gold and 15 times rarer than platinum itself. As a result, the quantum of available palladium supply can be measured in only thousands of ounces. Moreover, it gained its own hallmark only in July 2009. Like platinum, it is a noble metal and it does not react with oxygen. It is also bright white and therefore, unlike gold, does not require rhodium polish to maintain its luster. Like platinum, its scratches can be removed by just polishing the jewellery. As it is lightweight due to its lower density, larger jewellery pieces can be easily made. It also has a low melting point making it more malleable than platinum. It is comparatively more eco-friendly as it is a by-product of platinum and therefore it is not separately mined. Until its recent price spike it was a perfect substitute for platinum in jewellery making.

Palladium has around 10 million ounce supply, both mined and recycled. It is mainly mined in Russia (44%) and South Africa (40%), with the rest coming from the US and Canada. Recycling, too, forms a major source of supply, mainly from car exhausts that use palladium as catalytic converters that turn toxic gases to less toxic carbon dioxide and water vapour. Around 85% plus of the palladium demand is in auto-catalysts. The rest of the demand is spread between chemicals, dentistry, jewellery, electronics, investments, etc.

Demand has far outstripped supply in the last decade and at the same time stringent emission norms on polluting cars all over the world (China as well) has put a strain on supplies. Moreover, labour issues in South Africa and the flooding of mines in Siberia saw the palladium price shoot up to $3,000 per ounce in early May this year. In fact, precious metals that are used to control emission from polluting cars do see price spikes quite regularly. In 2000, palladium surged nine times from its normal trend by several hundred dollars per ounce. Likewise, platinum prices too have shown great spikes in the past. More recently, the palladium price has jumped by 6 times since 2016.

Going back to demand for palladium, it has been observed that fewer diesel cars are in demand in Europe that use platinum. For, it is being perceived that diesel car makers had cheated on emission norms in the past. Customers prefer petrol-driven cars that use palladium to control emissions in recent times. So, increased demand for palladium and lack of supplies have resulted in higher palladium prices. As palladium is a by-product, there is more of a time lag between high prices and investments for newer mines. As a result, it was not strange to see palladium ruling the roost in recent times and currently, the precious metals in terms of price as of August 27, 2021, in chronological order are:  silver $23.61 per ounce, platinum $990 per ounce, gold $1795.50 per ounce and palladium $2421 per ounce. It is an astounding feat for palladium when one considers that in the 1990s most of the time average price of palladium was between $89.11 per ounce and $363.83 per ounce.

The year began on a different note for the precious metals basket. Silver that ended 2020 at $26.48 per ounce shot up by over 11% to touch $29.58 per ounce by 1st February.

Platinum first fell to $1068 per ounce before, being buoyed by the fourth consecutive year of deficit, it soared to its highest for the year so far at $1,306 per ounce by 11th February, a gain of over 22%.

In contrast, while gold initially rose by 3.71% to $1,957 per ounce by 6th January, it slumped by over 12% and declined to $1683.85 per ounce on 6th April. Palladium declined by around 4% to $2,244 per ounce by early February. This initial surge in silver and platinum prices caused many analysts to predict that 2021 would be the year for the two white metals, silver and platinum, predicting a rise of 38% and 28%, respectively, over the average price in 2020. 

However, analysts predicted only a modest rise of around 11% for both gold and palladium during the year 2021. 

Palladium, aided by a flooded palladium mine and labour problems in South Africa, scaled the $3,000 per ounce peak for the first time in May and thereafter retreated to end at $2,421 per ounce on 27th August.

Palladium demand in jewellery

Of late, palladium jewellery is most expensive in terms of price. However, it accounts for just around 1% of the total demand for the metal. Even palladium ETFs are in vogue. However, strangely in spite of the low price during the 1990s, jewellery shops at Zaveri Bazaar in Mumbai mentioned palladium jewellery on their boards. At that time, it was probably used as a substitute to the more expensive platinum and gold jewellery. Now, one is looking for a substitute to the more expensive palladium!

Looking at substitutes for palladium, due to the nearly $1500 per ounce price differential between platinum and palladium (pt around $1000 per ounce and pd around $2500 per ounce), there are talks about platinum replacing  palladium in petrol-driven cars. However, that is easier said than done. For, it would involve technology changes to make platinum converters adapt to petrol cars. Then, there are rapid advancements made in hydrogen fuel cells cars that produce electricity and use platinum/palladium.

Moreover, there is greater clamour for zero-emission electric cars and that process seems to have accelerated recently. But, then it could take several years if not decades before electric cars and hydrogen fuel cell cars become the norm. Till then, palladium would be in a quandary as investors would hesitate to put money in mining to produce more of the metal when they know that in the long run autocatalytic demand would fall.

As a result, palladium could see supply shortages and high prices continuing to dodge it. A true “Catch 22” situation indeed!

Finally, will palladium become the preferred precious metal? Will it attract investors in large numbers to palladium ETFs, bars and coins? Will it become a safe haven?

As they say, “Anything is possible in this world”. But, it is probably highly unlikely for palladium to take over from gold and silver and even platinum in jewellery. For, the sheer quantum of consumer demand for jewellery in gold and silver, in particular, makes palladium jewellery a poor option due to unavailability of the metal because of very low supplies. Even as an investment option palladium fails due to lack of liquidity. So, in reality palladium is no threat to gold, USD and other precious metals!

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