Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Where’s my self-driving car? - 16th Aug 22
Real Reason why Pakistan and India Gained Independence in 1947 at 75th Anniversary - 16th Aug 22
Electronic Payments Can Benefit Your Business - Here’s How - 16th Aug 22
Qualcom Stock Market Harbinger - 12th Aug 22
Apple Exec Gets World's 1st iPhone 14 for Daughters 14th Birthday Surprise Present Unboxing! - 12th Aug 22
Steps to remember while playing live roulette online - 12th Aug 22
China Bank Run Protests - Another Potential Tiananmen Square Massacre? - 11th Aug 22
Silver Coin Premiums – Another Collapse? - 11th Aug 22
Gold-to-Silver Ratio Heading Lower – Setup Like 1989-03 - 11th Aug 22
Severe Stocks Bear Market: Will You Be Among the Prepared 1.5%? - 11th Aug 22
There's a Hole in My Bucket Dear Liza, UK Summer Heatwave Plants Watering Problem Song - 11th Aug 22
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Investors See Palladium as the “Canary in the Coal Mine”

Commodities / Gold and Silver 2018 Dec 11, 2018 - 07:52 AM GMT

By: MoneyMetals

Commodities

The precious metals sector has just one standout performer this year, and that is palladium. Lately the market for that metal has gotten more than just hot. Developments there could have implications for the LBMA and the rickety fractional reserve system of inventory underpinning all of the physical precious metals markets.


Craig Hemke of the TF Metals Report was Money Metals’ podcast guest this past Friday. He has been watching the developments in palladium closely and gave an excellent summary of what's involved.

Palladium prices went parabolic once before. The price went from under $400 per ounce to $1,100/oz from late 1999 to early 2001. Then, just as quickly, the price crashed back below $400.

Palladium's move higher in recent months is reminiscent. It remains to be seen whether or not a price collapse will follow. Some of the underlying drivers are the same, some are not.

Russia May Not Save the Palladium Marketing This Time

Today, as in 2001, Russia is the world’s largest producer of the metal. Mines there contribute about 40% of the world supply.

The shortage 17 years ago was driven by demand. Automobile and truck manufacturers began using more of the metal in catalytic converters. It was a lower cost alternative to platinum.

When the market ran into shortage, Russians, under President Boris Yeltsin, rode to the rescue. They were willing and able to bring more physical metal to market.

The added supply turned the market around just in the nick of time. The LBMA and bullion banks got away with selling way more paper palladium than they could actually deliver.

Today, palladium inventory is once again in short supply. This time around, however, the paper sellers in London and in the COMEX may find themselves at the mercy of Vladimir Putin.

Russian relations aren't what they were in 2001. Palladium users may not get the same rescue as before, assuming Russian miners have stockpiles to deliver.

The bullion banks’ problem is starting to look serious.

For one thing, the lease rates for palladium have gone berserk. Bullion bankers and other short sellers often lease metal to hand over to counterparties standing for delivery on a contract. Until very recently, they could get that metal for less than one percent cost. Last week, that rate spiked to 22%.

That is extraordinarily expensive, and it reflects the scarcity of physical palladium. The only reason a banker might pay such a rate is because he is over the barrel and has zero options outside of defaulting on his obligation.

Severe Shortages Lead to High Lease Rates, Backwardation

In conjunction with the surge in lease rates, the palladium market has moved into backwardation. It costs significantly more to buy metal on contracts offering delivery in the near future than it does to buy contracts with a longer maturation.

Normally the opposite is true when it comes to the precious metals. Investors buying a contract normally pay a premium to have the certainty of a fixed price today for metal to be delivered sometime well down the road.

Investors are paying big premiums (about $100/oz currently) to get contacts with offering metal for delivery now. The near-term price reflects a concern over whether promises to deliver palladium months from now can even be met.

Is the Palladium Situation a Dress Rehearsal for Gold & Silver?

Gold and silver bugs have long expected the bullion bankers will eventually put themselves in this kind of bind with the monetary metals. They have sold contracts representing something on the order of 100 ounces for every ounce of actual gold or silver sitting in exchange vaults.

That much leverage is bound to end in catastrophe, someday. All it will take is a collapse in confidence – the suspicion that paper will not and cannot be convertible for actual metal.

A failure to deliver in the relatively tiny palladium market could be the “canary in the coal mine” – a warning to investors in other precious metals. If there is a failure to deliver in LBMA palladium, it could shake confidence in the much larger markets for gold and silver.

The developing shortage in the silver market suggests that silver could be the next situation, followed by gold.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2018 Clint Siegner - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in