Idea of the Day What next for Palladium

What: The price of the precious metal palladium has more than doubled in the last 2.5 years, and it briefly touched $1000 per ounce on Monday, the highest level since 2001. Although it couldn’t sustain life above this level, the palladium story looks supportive for further price gains and palladium is the best performing precious metal so far this year.

The driver of palladium price gains is the move out of diesel cars and into electric vehicles, with palladium being one of the key metal ingredients in batteries for electric cars.

The question now is, where will palladium go next? One can assume that global air quality concerns will not abate, which puts pressure on car manufacturers to favour electric vehicle production over diesel. However, the inputs for electric cars, such as the mineral cobalt, can be difficult to find and expensive, which could slow down or even halt production of electric vehicles, keeping diesel cars around for a little while longer. Thus, palladium’s fortune may be dependent on the outlook for other minerals necessary for electric car production, rather than its own fundamentals.

There are a few things to consider when thinking about palladium: first, supply and demand. Palladium supply is at its lowest level for 14 years and demand has been outpacing supply since 2011. There is a strong potential for an ongoing supply deficit in the coming months, which could trigger a further price rise. Second, the global growth outlook, and third, any potential pitfalls that could disrupt the production of electric vehicles, such as cobalt mentioned above. Also worth considering are the dynamics of the precious metals market. The palladium/ platinum ratio is firmly supportive of further palladium gains, which highlights the demand for this metal over platinum, which is typically used in diesel cars.

How: Overall, we are bullish on the outlook for palladium and believe that unless we see a significant shift in palladium’s supply and demand fundamentals, or sufficient production disruption caused by tight supply in other key input markets including cobalt, then we may continue to see further price gains in for palladium. From a technical perspective, there is nothing to suggest that this metal will not push higher. Unless we see a drop below $950, which could signal further losses, we believe that we could see a return to $1010 in the short term, with a potential for a $50 price rise to above $1050 by the end of the year, based on the rate of gains in recent weeks.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.