Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns

Palladium bullion has surged a massive 17% in just nine trading days. From $895/oz on Friday April 6th to over $1,052/oz today (April 19th). The price surge is due to palladium being due a bounce after falling in the first quarter and now due to Russian supply concerns.

In a volatile month, precious metals and commodities have been the clear winners so far, with palladium having the greatest gains of all – up 10.7% in April (see table below).

Palladium has surged on concerns about supply from Russia which is the world’s largest producer of palladium with various estimates of its contribution to total global palladium production ranging from 40% to 50%.

Russia and increasingly unstable South Africa control more than three-quarters of the world’s palladium supply, according to Johnson Matthey. Global palladium demand outstripped supply by 23 tonnes (25.4 tons) in 2017, so depleted stocks of this very rare and finite metal were already running low. Palladium is a key component in the global car industry and this will cause difficulties for international car manufacturers.

Palladium lease rates are moving higher in London which suggests a shortage of palladium. Some believe, including precious metals analyst David Jensen, that Russia saved the London palladium futures market (paper/ electronic market) in 2001 when physical palladium was in very short supply and lease rates exploded.

Given the increasing tensions of today and the trade and financial war being waged on powerful Russian individuals including Putin and on Russia itself, ‘the Bear’ is less likely to be as forgiving and accommodating today.

Month to Date Relative Performance

Source: Finviz - Click to enlarge

Were Russia to restrict the supply of palladium due to the bombing of Syria against its will or indeed due to the latest round of sanctions, palladium prices will see even greater gains.

Most of the commodities complex has surged this month due to concerns about war in the Middle East and a trade, economic and actual war between Russia and the U.S. The more aggressive latest round of U.S. sanctions from the Trump administration has jolted a broad range of Russia-related assets including natural gas, oil, base metals and indeed precious metals such as palladium.

Palladium Price in USD, 2000 - 2018

Palladium in USD 20 Years – Macrotrends.net - Click to enlarge

Stocks have remained buoyant so far but the dollar and U.S. bonds have seen selling pressure. The long term fiscal outlook for Trump’s America is increasingly precarious with $1 trillion plus budget deficits being projected for the foreseeable future.

This makes the dollar vulnerable in the medium and long term and underlines the case for owning the precious metals of gold, silver, platinum and palladium. Larger allocations to gold are merited, then silver and investors should consider very small allocations to platinum and palladium.

The increasingly bullish fundamentals of the global silver bullion market were shown by us yesterday (see chart below). The fundamentals of very depressed silver are arguably even better than palladium. Palladium is not far from all time record nominal highs (see chart above) while silver at just over $17/oz languishes some 65% below its record highs of near $50/oz in April 2011.

Silver is arguably the cheapest and best value asset in the ‘inflated assets’ world of today. Due to the very positive supply demand fundamentals for silver including increasing investment demand from the “prudent smart money”,   expect silver to see similar sharp gains once it has a weekly close and breaks out above $18.50/oz.

Silver Prices, Jun 2008 - Jan 2018

- Click to enlarge