Geopolitical risk has a role, too.
Palladium has been on a tear this year. Its spot price increased 45 percent year on year in the first half of 2017, and it now trades at a 16-year high. Although the rally has largely been attributed to the strong demand from the automotive industry, there’s a geopolitical risk premium baked into the price.
Approximately 67 percent of palladium produced is used in catalytic converters, which convert up to 90 percent of the harmful gases in automobile exhaust to less noxious substances.
Global auto sales, up 4 percent for the year, are driven by a global increase in SUV sales, the ongoing shift from diesel to gasoline engines in Europe (diesel engines alternatively use platinum), and tightening emission legislation.
Sales of autos fueled by petroleum have been particularly strong in China and India. According to Jeffrey Christian, managing partner of CPM Group, car sales in China have been “borrowed” from future years through the offering of rebates and tax cuts. In the first half of the year, auto sales in China rose 4.3 percent, to 13.4 million units, from a year earlier.
Palladium’s price has been lifted by the rally in gold due to its status as a haven in the wake of a North Korean missile launch over Japan, and the devastation caused by Hurricane Harvey. The price of gold tends to have an effect on the precious metals complex.
For the rest of this column: https://www.bloomberg.com/view/articles/2017-08-30/palladium-rally-is-about-more-than-just-autos