A number of analysts are talking about palladium continuing its price ascendance and ultimately trading above the price of platinum, quite possibly before the end of the year. It has happened before, due to a palladium shortage in Russian supply back in 2001 and it could happen again. But if it does, it would probably be a relatively temporary condition. Palladium is used in combination with a small amount of rhodium in catalytic converters, so as to control the nitrogen oxide emissions of gasoline fueled automobiles. During that 2001 shortage, palladium ran above $1,100 per ounce, while platinum wallowed around $600. In the interest of cost, during the interim, a great deal of research went into the requirements of swapping one metal for the other. And once again, by early 2016, the two metals had nearly swapped value positions, with platinum back on top.
When queried about platinum being substituted for palladium if palladium resumed the top spot, David Jollie, a strategic analyst with Mitsui Precious Metals said that even if it happened, it’s unlikely that we’d see platinum substituted for palladium on a significant scale. There’s two main reasons, first is the fact that palladium would need to trade above platinum for a long period of time, in order to realistically demand a viable and cost-effective alternative. And the second reason is the fact that substitution is not a simple matter of replacement. The metal used in an autocatalytic converter, whether platinum or palladium dictates specifications as to how the engine itself is designed, tuned, and operated. It’s not a one-size-fits-all swap.
The research generated by precious metal price fluctuations has led some to consider a lower and potentially more efficient loading of palladium, or higher loadings of rhodium to substitute away from palladium. The first option is making headway in the laboratories with improved degradation length and physical engine design adjustments, on top of the fact that it is the far preferred metal (when price is not an issue). Rhodium at a substantially lower price gets attention, but its checkered past causes many to steer clear. Back in 2004, the metal staged a spectacular price rally, from lows of $500 per ounce in January, to $10,000 per ounce by June of 2008.
Regardless of your motivation for reading this article, what every investor should realize about precious metals is two critical points. First, is the fact that precious metals, by nature are precious, meaning highly valued and in short supply. And secondly, is the fact that due to their unique elemental properties, they can provide unique benefits and utilities, particularly in a variety of industries. The dramatic price fluctuations discussed in this article resulted from a sudden increase in demand or drop in supply. The Hunt brothers attempt to corner the silver market in 1980 should stand as a shining example for all to learn from, as to how small and fragile the precious metal market is. There simply isn’t enough for everyone. And when the world truly realizes that, the price may skyrocket. You can watch it happen and wish you had seen it coming, or you can secure your financial legacy today and not worry about it. But if you still consider precious metals “just another investment,” then you haven’t been paying attention.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.