Palladium Trumping Platinum

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"The price of palladium has risen more than 35% this year. . ."

Palladium is putting on its biggest show of outperformance against platinum in over six years, in a clear reflection of China's dominance in the global auto sector that is only likely to strengthen from here.

The price of palladium has risen more than 35% this year to top $570/oz., driven in part by the proliferation of ETFs backed by physical metal that has sparked unprecedented demand for PGMs.

Both platinum and palladium are used in vehicle catalysts in varying quantities. Catalysts in diesel engines tend to take a higher loading of platinum, while palladium is more abundant in catalysts for gasoline engines.

China, a largely gasoline vehicle market, now ranks as the world's largest and fastest-growing, and palladium simply mirrors that dominance over sister metal platinum, which depends more on the flagging European market for sustenance.

"Right now, China has become the engine for the world economy. Palladium's outperformance over platinum just reflects it," Commerzbank Analyst Eugen Weinberg said.

Ratio Shrinks

The platinum/palladium ratio—the number of ounces of palladium needed to buy one ounce of platinum—has fallen to its lowest level in over six years, reflecting palladium's outperformance relative to platinum.

This ratio declined to 2.88 this week, from a peak of 5.52 in February 2009, marking its lowest reading since April 2004.

Platinum has not only been eclipsed by palladium this year.

Gold, which hit record highs this week, has gained more than 15% so far this year, while platinum is up almost 9%, trading around $1,598/oz.

This beats the 0.5% YTD gain in the S&P 500 for example, but pales against the 58% rise in the platinum price in 2009.

Platinum has benefitted hugely from investment through ETFs, one of the largest of which was launched in the U.S. in the last 12 months.

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