Palladium Price Jumps on Industrial, Investment Demand


"Rising economic hopes and increased investment demand boosted palladium 7% this week"

Rising economic hopes and increased investment demand has boosted the palladium price by 7% this week, though analysts urged caution the surge could be the result of short sellers being forced to cover their positions.

"Palladium looks overbought in the short term," according to Mark O'Byrne, director of precious metals consultancy GoldCore, "but there is strong investment demand after the recent launch of a U.S. palladium ETF."

In January, ETF Securities launched a physically backed palladium ETF in New York, which has been extremely successful. Daniel Major, a commodity strategist at RBS, calculated that the inflow of money into palladium ETFs worldwide was equivalent to 28% of estimated palladium consumption in the first quarter. The launch of the new U.S. fund has resulted in the amount of palladium held as an investment to rise 48% over the quarter.

Many factors have combined to boost the price, including concerns about depleting supplies in Russia. "Ore deposits of palladium are rare and are mostly located in Russia and South Africa," O'Byrne said. "Russian resource nationalism, as has been seen with natural gas, could lead to price spikes and to palladium going higher in the coming months."

Some analysts also believe palladium may be in deficit for most of the next decade as Russia depletes stockpiles, industrial use rises and investment demand for the metal as a hedge against inflation increases.

Demand for ETFs in all metals is rising sharply, particularly in gold, silver and platinum. It was revealed yesterday that investment demand for physical gold in 2009 surpassed jewelry buying for the first time since gold hit its inflation-adjusted high in 1980. Demand almost doubled over the course of the year, with high prices and the global economic downturn causing demand for gold jewelry to slide 20%, according to metals consultancy GFMS.

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