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Article / 10 August 2016 at 10:00 GMT

Palladium, precious metals spike in Asia

Head of Commodity Strategy / Saxo Bank
  • Weak dollar, fading rate hike fears supporting precious metals
  • Chinese automotive demand driving PGMs
  • Platinum net-long approaching record levels

Rush hour in China
A big uptick in Chinese automobile demand is boosting 
platinum and palladium prices. Photo: iStock 

By Ole Hansen

Gold and the white metals, not least palladium, all moved higher during the Asian session today. Palladium took the lead and rose by more than 7% in very thin market conditions. A weaker dollar, which came about in response to expectations that the Federal Open Market Committee is unlikely to move on rates, supported the continued investment demand for metals.

Platinum (first futures month) touched a 16-month high at $1,188/oz. with the discount to gold narrowing to $170, the lowest seen this year.

Palladium jumped by more than 7%, the most since 2010, in a quick, sharp burst that was probably driven by opportunistic buyers in search of buy stops above $700. As it happened, they found them and were handsomely rewarded as the market surged by more than $50 within minutes. 

As usual, liquidity was poor at this time of day with less than 800 lots traded during the initial surge.  

Palladium spikes higher:
Platinum and Palladium

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Source: Saxo Bank

White metals have seen increased investment demand following the Brexit vote back in June. The initial surge in gold back then helped trigger broad demand, initially for silver, but then for platinum and now also palladium.

These metals have found support not only from investors seeking a hedge against modern monetary policies where negative yields and quantitative buy programmes have become the norm, but also from industrial demand.

Recent date from China showed that passenger-vehicle sales accelerated by the most in 17 months in July. Industrial demand for Platinum Group Metals primarily derives from the automobile industry and with 1.6 million vehicles sold in China last month, this will help support demand. 

Right now, demand is outstripping supply. Forecasts say that by the end of the year, the supply deficit will increase from 800,000 ounces to 1.35 million ounces, equivalent to about 14% of total annual production.

Hedge funds have also been active buyers during the past month, particularly in platinum where the net-long has started to approach record levels. 

Speculative positioning
 — Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank


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