Platinum and Palladium- A Tale of Two Metals

By: Brett_Tudor

While all the attention has been on gold this year, the recent spikes in these precious metals has been overlooked, so let's look at the long term viability of these PGMs in more detail.

Visit your local jewellery store today and it is highly likely you will find an abundance of Palladium on display. Palladium is being heavily pushed by jewellers struggling to sell more expensive items produced from gold or platinum. Virtually unheard of on the high street prior to 2007, palladium is rapidly becoming the precious metal of choice for those seeking a bargain. The average price of a ring for example is less than half the equivalent in white gold and a quarter of the price of the equivalent ring made from platinum as I discovered recently.

As a result of low prices and its naturally white properties, similar to both white gold (palladium is used to produce this alloy) and platinum, Palladium is becoming popular as a poor man's alternative. The metal is lighter than platinum, therefore it is more comfortable to wear, however its relative cheapness betrays the fact that like platinum it is several times rarer than gold. Platinum and palladium are also found together in the same ores. This is not the only similarity between the two metals, like platinum, palladium can be used in catalytic converters and electronic components therefore demand is strong in these industry sectors.

The interesting thing about platinum and palladium is that both of them are rising in price with the former reaching record levels this year. The reasons for this lie in global production and more specifically in South Africa and Russia and to a lesser extent, the current weakness of the US dollar. South Africa and Russia are the two primary producers of both these precious metals by some distance and stock levels are directly affected by supply issues in these two countries.

The key drivers of the recent spike primarily in platinum and palladium has resulted from Russia holding on to its stocks and the unpredictable supply of electricity to South African mines.

Platinum is hovering at around $2000/ oz and ounce which puts the current gold spike into perspective! while palladium surged 46% in just one month this year reaching a high of $568/oz before falling back slightly.

So do these metals offer a safe haven for investors?

In order to be a safe haven if one exists (just take a look at the long term performance gold that other precious metal regarded as a safe haven) a home for your cash needs to provide stability in the longer term. It is a fundamental fact that most, if not all commodities will rise with a weak dollar as investors hedge against its weakness. The US dollar is weak therefore it is no coincidence that money is pouring into precious metals yet in the long term it is unlikely that prices will be sustained at current levels when the dollar recovers.

So is this current surge in platinum and palladium underpinned by a weak dollar?

Well this may be true to a certain extent, but if you look at the long term trends of PGMs compared to gold there is a greater tendency for price levels to surge in PGMs and this is as a direct consequence of the level of supply. Production over the years has played a much bigger role in the value of PGMs than gold.

While the market for PGMs is less speculative than gold there are signs that investor interest is growing amongst a small number of hedge funds. However, in the long term price levels are far too volatile for all but the most serious investors prepared to watch the market carefully.

The price of these metals like gold is likely to fall as the US dollar recovers though not as dramatically. The immediate future of these precious metals is heavily reliant on Eskom , South Africa 's state run power company and whether or not they will deliver the consistently high level of power required to mine the metals. With every increase in the level of power to the mines, the price of platinum and to a lesser extent palladium plummets.

By Brett Tudor

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