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In my previous article, “Palladium Showing Money Printers Can’t Hide Their Game,” I discussed how the paper pricing mechanism is proving to be a dark hole for palladium and rhodium.

Courtesy: RealDavidJensen

Palladium

As discussed, money printing is causing investment demand to increase in precious metals, not just for industrial uses. According to Scotiabank commodities analyst Nicky Shiels, the above-ground palladium stocks are roughly 671k ounces and will run out in less than 3 months if the unwind rate of the last 3 years continues.

LBMA Losing Control?

Nornickel put 100k ounces on the market and only dropped the lease rates down to 4-5%.

Palladium Shortage Fueling Platinum

On 2/4/2020, lease rates jumped back up to 16% and settled at 10%. Auto industry metrics have shown that car sales are declining. Demand for cars is down, so how can metal be surging out the back door? Sure, the supply shock of China switching to palladium with little supply has an effect, but I am willing to wager that smart investors and producers are hedging accordingly. Lease rates are showing that a shortage is upon us for the foreseeable future.  Shortages in palladium and rhodium are creating an opportunity in a metal that was once used more frequently. 

 

Comex Record Short Platinum?

Platinum, mostly known for jewelry, used to be the choice metal for catalytic converters. The all-time-high prices in the palladium metal basket will put a floor under the platinum price. Platinum is typically a rather boring market, but in times of stress, this market can become volatile like other rare metals. If investment demand and the auto industry keep depleting these metals, at least for a short time, we’ll have no choice but to use platinum. Platinum will become the preferred metal choice because of low price risk and low availability risk. The timing of this change is hard to know, but based on this chart we could start seeing that in 2020.

What you see here is that the commercial banks are at a record short on the Comex. Paper shorts are at all-time highs but the price keeps rising? Are we due for a short squeeze soon? The divergence in 2020 is eye-opening. This is happening in palladium and gold as well. Gold and platinum have much greater supply stocks but holding prices down is getting harder and harder. Commercials are net-short 60% of annual mine supply in platinum. Similarly, lease rates on platinum hit their highest level since 2010.

Platinum Lease Rates Following Palladium

 

Is this supply squeeze in the palladium metal basket already here? Are substitution talks for platinum already here? I would wager the answer is yes.

The 10-year bond is on its final legs towards going to zero.

 The Fed will be cutting interest rates in June to get the Fed funds rate back under the 2-year Treasury to manipulate a normal yield curve distribution. The Fed will add another floor to precious metals as real interest rates continue to move lower.

As of February 7, 2020, the real 10-year rate was -0.07%, and this is most likely going much lower.

If the Fed talks of capping interest rates and buying coupon bonds come to fruition then owning real, hard assets will be the trade for the foreseeable future.

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