Palladium seems to be the sole bright spot in the murky precious metals sector once again as it extends its 2014 rally with prices rising six percent on the first month of the year. This is in sharp contrast with its sister metal, platinum, which is facing its third year of losses.
“We foresee another positive year for palladium based upon attractive supply/demand fundamentals, despite the backdrop of a relatively weak global economy,” said Ross Norman, chief executive of Sharps Pixley, a London-based precious metal seekingalpha.com broker.
He saw an ongoing supply deficit of around 1.4 million ounces, propelling an average price forecast of $845 per ounce, up from 2014’s $799. Palladium is expected to extend those gains to an average of $900 per ounce in 2016.
Both palladium and platinum are widely used in autocatalysts and are expected to benefit from robust demand for new cars. However, platinum is more heavily exposed to the laboring European market, which favors diesel cars that make use of heavy platinum loads.
The South African labor strike seemed to have little impact on platinum prices, as it still ended 2014 down by 11.79 percent. Palladium, on the other hand, can also profit from investment buying and supply threats from South African mining strikes and sanction-laden Russia.
Nevertheless, the fate of palladium in 2015 is not yet set in stone. Russia is the world’s top palladium producer, accounting for 40 percent of the global supply. One of the possible factors that could offset predicted palladium supply deficit is the country’s palladium stockpile, as its volume remains to be a state secret.
Furthermore, Russian mining company Amur Minerals Corporation is also set to produce palladium once it receives its mining license from the Russian Government. According to latest estimates, Amur Minerals’ Kun-Manie Project could produce as much as 830,000 tons of nickel, 18 tons of palladium, and 16.9 tons of platinum.
Meanwhile, other precious metals are struggling to keep afloat amid worsening energy climate. Silver had its second straight down year as it fell 19 percent despite record sales of Silver Eagle coins. The weak industrial use of silver in the first half of 2014 still has an impact on the metal’s falling prices.
Gold, meanwhile, hit a five-month high in January, but eventually fell back down for the second straight year. But even though the precious yellow metal dropped 1.72 percent, it still remained a more reliable form of currency than any other, excluding the dollar.
Still, PSPFX portfolio manager Brian Hicks encouraged investors to see the low prices in the precious metals and energy sectors as an investment opportunity. With regard to oil investments, he said, “We think the stocks look very attractive here, and if you look at their performance to crude oil, they’ve actually been outperforming since mid-December.” The cyclical nature of the energy sector should serve as reminders for investors that tough times don’t last forever.