Gold Tied To Fed; Palladium Or Platinum?

May 08, 2015

 

HAI: Platinum hit a five-year low earlier this year; why is that? Aren't supplies tight following the South African strikes of last year?

 

McGlone: Key pressure factors for platinum have been the weaker euro, recession in Europe and the overall plunge in most industrial commodities. Platinum trading below the price of gold has historically been a bullish factor for platinum, notably due to the demand for platinum jewelry in China, now about 25 percent of total platinum demand. The latest China platinum import figures are encouraging: up 26 percent in March 2015 from March 2014.

 

However, on a 12-month basis, China platinum imports show the fall-off in demand which has suppressed prices the past 12 months. Supplies are tight. Platinum is expected to remain in deficit again this year. But the market and supply have recovered from last year’s strikes. In the longer term, it is unlikely platinum will be able to sustain current low prices, as most analysts estimate the cost of production at much higher levels.

 

HAI: Is platinum or palladium the better buy?

 

McGlone: Hard to say, as platinum appears rather cheap and palladium has been one of the best performers among most commodities the past few years. Platinum should be well-poised to be a primary beneficiary of a potential recovery and increasing auto sales in Europe (diesel- and platinum-focused). Palladium remains a primary beneficiary of increasing auto sales in China and most emerging markets (more gasoline-focused). We like them both. However, we do not expect the longer-term trend of palladium outperforming platinum to shift.

 

HAI: Is there anything else you'd like to add?

 

McGlone: Inflation expectation is the primary reason the Fed has increased rates in the past. One of the best forward-looking indicators of future inflation is the bond market. Until—or unless—the U.S. bond market begins to price for increasing inflation (i.e., the U.S. 10-year sustaining above 3 percent), the Fed probably should not consider beginning a tightening cycle.

 

 

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