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Palladium Pierces $1,600; Gold up Pre-Fed

By Barani Krishnan

Investing.com - Neither the Chinese economy nor the global auto sector is looking rosy this year, yet palladium, which is used for making the catalytic converters that purify gasoline emissions, is in a bullish world of its own.

The spot price of the silvery-white metal smashed past the $1,600 level for the first time in a second-straight day of record highs on Tuesday amid expectations of continued scarcity in the commodity produced mainly in Russia and South Africa.

Spot palladium was up $6.95, or 0.4%, at 1,585.25 per ounce, after setting an all-time high of $1,602.30. Palladium futures, traded on the Comex division of the New York Mercantile Exchange, rose by $8.20, or 0.5%, to $1,547.90 per ounce after a peak at $1,563.60.

Other precious metals, led by gold, also rallied as the dollar traded near three-week low on bets that the Federal Reserve will announce another hold in interest rates on Wednesday at the end of its March meeting.

A negatively-yielding dollar tends to push investors toward alternative assets, with precious metals seen offering the best store of value.

The dollar index, which measures the greenback against a basket of six currencies, slid by 0.2% to 95.782 by 11:30 AM ET (15:30 GMT), after sliding to 95.732 earlier, its lowest since Feb. 28.

Spot gold, reflective of trades in physical bullion, rose by $4.22, or 0.3%, to $1,307.92, after a session peak at $1,310.93. Comex gold futures for April delivery gained $6.25, or 0.5%, to $1,307.75 per ounce.

Palladium's rally heightened this week on news that Russia was mulling a ban on the export of precious metals scrap and tailings to promote domestic refining of the materials.

More than four-fifths of the world’s palladium comes as byproduct from nickel mining in Russia and platinum mining in South Africa. That leaves its supply dependent on the success of extraction in those two metals.

Johnson Matthey (LON:JMAT), a leading autocatalyst manufacturer, said the shortfall in the roughly 10 million ounce-a-year palladium market narrowed in 2018 to 29,000 ounces from 787,000 ounces in 2017, its widest in three years.

Moody's last week cut its global auto sector outlook to negative from stable, forecasting a 0.5% sales growth this year versus a previous target of 1.2%. The downward revision comes amid continuous concerns that China's economy might have its slowest growth this year in three decades, adversely impacting its auto industry.

But such negative talk has done little to deflate the investor enthusiasm for palladium.

"Palladium is now a leader in precious metals, with each price hike making news and further media discovery of its tightness," said George Gero, analyst at RBC Wealth Management in New York. "'Talk of Russia slowing palladium exports is front and center in any analysis on palladium."

Gero also cites another less spoken use for palladium -- as catalyst for cracking crude oil into products such as gasoline and heating oil.

"China is also resorting to economic stimulus, so the landing for the auto industry may not be that bad at all from the palladium investors' perspective."

Trades in other Comex metals as of 11:30 AM ET (15:30 GMT):

Platinum futures up $17.60, or 2.1%, at $851.60 per ounce.

Silver futures up 8 cents, or 0.5%, at $15.40 per ounce.

Copper futures up 2 cents, or 0.8%, at $2.93 per pound.

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