Platinum & Palladium: The New Normal?

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March 08, 2011
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Platinum and palladium investors had an outstanding 2010. But does today's price increase signal a new normal for these metals?

 

In just over one year, the ETF Securities Platinum Trust (NYSE Arca: PPLT) and Palladium Trust (NYSE Arca: PALL) have swelled to $832.65 million and $932.66 million in assets under management, respectively. Is acceleration just a spillover effect from gold's stratospheric rise? Or is something else fundamentally driving these metals higher?

 

Factors Driving Today's Prices

On Friday, platinum closed at $1,841/oz, up 4 percent since the beginning of the year. Meanwhile, palladium, 2010's big winner, is up only 1.28 percent year-to-date, closing at $810/oz. While these year-to-date returns may seem lackluster, there are reasons to believe higher prices may be soon on the way:

 

White Metals: 3/4/10 - 3/4/11

 

Both metals have seen prices like these before. Back in 2008, platinum rose to almost $2,200/oz right before the crash. For palladium, you have to look back a bit farther; in 2001, the metal briefly scaled the $1,000/oz mark, before quickly falling back under $400/oz.

But the impetus for today's price increases can be traced back to the aftereffects of the 2008 crash. Demand for both metals dropped after the crash, and mining companies rushed to contract supply.

In platinum, 2009 demand contracted sharply, much more quickly than supply—which led to a market oversupply in 2010. Still, demand rebounded in 2010, which absorbed much of that oversupply, thus tempering any further price increase for the metal:

 

Platinum Supply/Demand/Net Balance; Past 10 Years

Source: ETF Securities Platinum and Palladium - 2011 Outlook and Fundamentals

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