If you follow the markets long enough, you’ll come to a familiar conclusion: sentiment moves in cycles. While the equities market has witnessed a strong rise in optimism, the overall trading remains pensive. As a result, traditional safe-haven assets such as precious metals have generally trended higher.
Since the opening price of October, the average price for spot gold has gained nearly 8%. In the same timeframe, gold’s industrial cousin silver moved up 6.4%. In contrast, the Dow Jones Industrial Average has dropped nearly double digits despite enjoying a strong start to the year.
More importantly, evidence indicates that this surge in the precious metals is due to a flight to safety. If bullion was moving strictly based on gold and silver’s industrial demand, we’d expect platinum to swing higher. After all, the latter metal is one of the rarest in the world.
Yet platinum prices are on course for a disappointment unless the narrative changes. Although it has rarity on its side, platinum is currently the only asset among precious metals to have gone negative. Over the past three-and-a-half months, the average spot price slipped below parity.
But while platinum has stunk up the field, another silvery-white metal, palladium, has taken the decisive lead.
Palladium Could Shock Precious Metals Again
Like platinum, palladium is an exceedingly-rare element. It features much of the same utility as its look-alike brother, but that’s where the comparisons end.
Just in this year alone, palladium has trekked up 6.7%. Since October, its physical price has gone up slightly over 20%. That’s a massive haul, especially considering the uncertainty and volatility in the broader financial sector.
But if palladium has a similar composition to platinum, why the vast difference in sentiment? It all comes down to simply supply and demand.
One could argue that platinum represents a rarer element than palladium. However, the latter is mostly produced in two countries: Russian and South Africa. Russian palladium reserves have remained a state secret, but production stats indicate declining availability.
On a more conspicuous point, the U.S. and western countries have a negative stance on Russia. With frequent saber-rattling dominating the headlines, it’s no wonder that an essentially Russian-controlled asset has skyrocketed.
On the other end of the scale, South Africa is a basket case. With no political stability or even basic decorum in sight, the country could economically implode at any moment. Moreover, its extremely controversial land-appropriation program – which uses race as a motivating factor – has garnered widespread criticism.
But the details don’t rely matter for the speculator. The bottom line is that palladium has remarkable fundamental factors that restrict supply. Naturally, it’s going to lead the precious metals, and perhaps for many years to come.