LAWRIE WILLIAMS: Gold price back ahead of palladium again

the sharps pixley site still appears to be down so posting this article here and seeing if I can upload the Link to sharpspixley.com

A rising gold price and a falling palladium one have seen gold regain its crown as the highest priced principal precious metal. Both metals do seem to have a fair amount going for them but, for now, the sentiment appears to be with gold.

Nervousness about the onset of a possible global recession plus a perceived drop in gasoline (petrol)-powered automobile sales worldwide has seen the high-flying palladium price slip back.  With gold showing some strength, the price positions between the two precious metals have again reversed – as predicted in early year price forecasts – with gold trading as I write at about a $20 premium over the pgm.  However palladium supply/demand fundamentals remain strong and the price tends to be much more volatile than gold so don’t be too surprised if it regains its price ascendancy over gold in the short to medium term, but perhaps only briefly.

Historically gold has usually traded at a substantial premium over palladium, although not over the latter’s sister metal, platinum.  We suspect over time there will be something of a return to the status quo with platinum playing catch-up, but that may take some years to come about.  Palladium demand is hugely dependent on the autocatalyst market – a recent estimate is that this sector accounts for 80% of palladium demand – so a continuation in the drop in auto sales could hit the metal hard.  But there remains a big supply deficit overhang which will take some time to eliminate so palladium could yet benefit from the occasional price spurt.

The ever growing take-up of battery electric powered vehicles, and perhaps longer term of fuel cell power, will also severely dent the prospects for palladium, as it will for another pgm group metal, rhodium, which tends to be utilised – in very small quantities – alongside palladium in autocatalysts, but it will take a few more years yet for these alternative drive systems to put a serious dent in the internal combustion engine market,  Given that the world’s second biggest auto market is the U.S., and that country is currently led by a climate change sceptic who perhaps sees less need for non-polluting vehicles, and has a strong vocal following, the take-up of alternative-powered automobiles may move slower than anticipated in that part of the world.  However the world’s biggest auto market currently is China, and given that country’s air pollution problems electric vehicle take-up there is likely to be strong.  Swings and roundabouts!

As for gold itself there appears to have been a major change in sentiment towards the yellow metal which has certainly been price supportive over the past few days.  Futures markets are pricing gold higher than current spot levels so it could have further to run. Outflows from the world’s biggest gold ETF, GLD, have been replaced by inflows which is a guide to where the big money is now headed.  Some commentators see the gold price as now threatening this year’s high of around $1,350 over the summer.  We shall see.

All in all though there are a number of factors which look to be in favour of a rising gold price.  Tariff wars instigated by President Trump’s aggressive foreign trade policies, geopolitical instabilities in several parts of the world which could blow up any time, fearful equity markets and the now likelihood of U.S. Fed rate cuts all would appear to be gold price supportive.  Gold investors may yet have something to cheer about as the year progresses.

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