What currently feels like an ice age ago, on the 10th of March I posted a TV interview on the Investors Chronicle website where I explained that the outlook for palladium was far more bullish than that for gold or silver. In fact, I should’ve chucked platinum into the dog basket too, plus another three of the platinum group metals (PGMs), because only iridium kept pace with palladium (up 45 per cent this year to $960 per ounce). Generally, PGMs are prized for their catalytic properties, resistance to wear, tarnish and chemical attack, with stable electrical properties. Therefore, it should not be a surprise to learn that palladium is used for auto catalysts, electronics, and chemical reagents.
Can palladium continue to power ahead again next year? With the price ratio to gold approaching 1 (currently 1.2375), gains will be harder to maintain but are certainly not impossible. When palladium prices peaked at $1,095 in 2001 (because a large US vehicle manufacturer tried to corner the market), the ratio to gold dropped to 0.2555. Also of interest is that despite the 45-degree ascent, and a price increase of 57 per cent this year, observed volatility is really rather low at 10 per cent and a fraction of 2008’s peak at 47.5 per cent. Although currently overbought on the RSI we favour a slower rally to $1,175, possibly the psychological $1,200.
Compare and contrast with the chart for platinum, mainly used for jewellery. From diamond-studded diva and costing $2,290 in 2008, the ratio to gold is a mere 0.71 today versus a record 2.36 ounces of gold to platinum in 2001 and again in 2008. The chart since then might be described as the yoga pose ‘downward-facing dog’, trading at this year’s low and still looking top-heavy, momentum steadily bearish since 2013. Allow for a retest of pivotal support between $750 and $800 next year.
You might be wondering why I’m writing about something that’s likely to drop in value; not exactly wise investment advice, you’d say. The reason is that it’s very easy to short these – selling, even though you don’t own it – in the hope of making money by buying it back more cheaply. This is exactly the sort of thing long/short hedge funds do all the time. Money made on both legs of a trade rather than the buy and hope style favoured by stockbrokers.
Spot gold is currently trading midway between this year’s range, off 8 per cent from August’s high to which, for non-US buyers, one must add another 9 per cent of US dollar depreciation since January. From September, open interest in the New York futures contract has slumped, possibly as a concomitant to Bitcoin’s surge this quarter. We’d expect prices to try and hold rather unsteadily between $1,240 and the psychological $1,200 per ounce. However, the sensible investor should pencil in a drop to $1,085, the half-way mark between the Gordon Brown low and 2011’s record high at $1,920.
Silver is cheap, and for a reason. As a housewife I object to having to clean it, more frequently now that pollution levels in London are so high. More importantly, silver-plated cutlery does not do well in dishwashers; stainless steel may be ugly, but survives. The slow trend to lower prices should continue – bar a cryptocurrency or US dollar meltdown.
