Palladium Surges To 2001 Highs At $874/oz - Up 13 Days In A Row

Today’s AM fix was USD 1,322.50, EUR 971.71 and GBP 773.08 per ounce.
Yesterday’s AM fix was USD  1,318.25, EUR 969.23 and GBP  770.73 per ounce.

Gold climbed $0.10 or 0.01% yesterday to $1,319.70 and silver rose $0.02 or 0.1% to $21.04 per ounce.

Palladium in US Dollars - 20 Years

Gold bullion was 0.6% higher this morning as a drop in equities and the dollar coupled with increased tensions in the Middle East led to demand for gold as a hedging instrument and safe haven asset.

Bullion for immediate delivery advanced as much as 0.6% to $1,327/oz, the highest price since July 3. Portugal and Italy led declines in European bonds and European stocks also dropped. Emerging-market shares fell from a 16-month high.

Investors  increased holdings in the largest exchange traded product. Tensions in the Middle East and Ukraine are ensuring demand for gold as insurance against geopolitical risk. Gold is now 10% higher this year, the best start to a year since 2010.

Palladium rose to a 13 year high on increased demand and supply concerns. It has risen for the 13th straight session amid continued concerns about supply from the world's leading producer Russia and second largest producer South Africa.

Palladium hit $873.75 an ounce, the highest since February 2001, taking its gains to 8% over the past two weeks.

Miners in the world's second-largest producer, South Africa, struck a wage deal to end a five-month industrial action that crimped output. But there are concerns that supplies in South Africa will tighten even after the end of the strike as since then, other smaller strikes have broken out, stoking supply fears.

The metal, mainly used in autocatalysts in automobile manufacturing, in jewellery and increasingly by investors has gained more than 25%  since early February. Gains were aided by last week's data showing U.S. auto sales at an eight-year high in June and increased demand in China which along with the U.S. is the largest consumer of platinum and palladium.

Palladium in US Dollars and Palladium ETF Holdings - August 2013 to July 2014

There is also significant and growing investment demand for palladium and platinum as a diversification. Platinum and particularly palladium ETFs have seen heavy inflows this year. A palladium ETF launched in South Africa has proved particularly popular with investors.

The majority of the world's palladium reserves are found in just one country, Russia. Russia has restricted supply in the past and geopolitical tensions and resource nationalism could see it do so again. This would lead to much higher prices in a physical market that is already in deficit.

The fundamentals of the platinum group metals remain sound. Both PGMs remain below their record nominal highs and way below their inflation adjusted highs.

The PGM metals are more volatile than gold and therefore merit a lesser allocation of one’s wealth. A strategy of reweighting and rebalancing precious metals when they outperform is a strategy we would advocate.

Platinum and palladium coins and bars remain a prudent diversification for anyone wishing to preserve and grow wealth in the coming years.

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