Palladium Price Bubble? Will It Pop?

Written by Ian Davis - Bullion Manager • Last updated 19 Jun 2019

"Experts" and critics claimed palladium was already in a bubble when its price was still below $1000 per ounce. Now, as of today, it is trading over $1400. Says a lot for predictions, hype and prophecy against which we advise caution at best. Often this will amount to a total disregard of forecasts!

Palladium Price Past 12 Months

Real world drivers can often be overlooked and the diesel emissions scandal and switch to petrol cars (and palladium intensive catalytic convertors) has been more drastic than originally thought. This coupled with public sentiment, ECJ rulings on emissions and supply constraints puts us on course for even higher prices.  For a metal produced as a by product of nickel and platinum mining a $10bn market is very modest but when compared to golds $3 trillion tag it clearly has a long way to go.

World Gold Council - Gold Market Size and Split

Will the bubble pop? It depends how you view the situation. Industrial uses do not necessarily disappear overnight which remember is the main driver to the increase in price. By 2030 or so the combustion engine is to be phased out, at least in Europe anyway, and the growth of the electric car will cause a stir in other commodity markets in particular lithium. The shift away from the catalytic convertor might result in a drop in palladium price unless other industrial uses are found. This might occur earlier as car companies switch to a cheaper precious metal for their components but until then I cannot see what would bring the price down and if bullish investors jump on board the price could continue higher. Trying to get behind the numbers and figure out how much is industrial demand and how much is speculation is difficult and to add more woes palladium attracts VAT so for the private investor this can cause an issue. That is of course unless the price rise continues, and you offset VAT losses with a fat profit but then this is pure speculation of which we have already said we are not fond of.

It is a shame we are not sat on 1000 ounces of palladium bought back in 2016 when prices were much lower at $700 per ounce but that is the reality of the situation. We are not speculators so won’t be buying in bulk and prefer to buy low and sell high where we can. That said those lucky few who had the foresight and invested years back or those countries with a stockpile (notably Russia) must be clapping their hands as they stand to cash in on a 90% increase in price. These are the true winners in this situation as they bought at rock bottom prices. Take a parallel with crypto currencies and bitcoin rise and fall. Those speculative investors who jumped on the band wagon late on found they paid high prices for a digital asset and as it started to lose appeal fell into oblivion with thousands losing money and even life savings in some cases. On the other hand, those who bought for the right reasons pre-2017 i.e. a belief in blockchain technology whilst the price was low and arguably related to its real-world use are still sat on a profit. This profit might not be the ridiculous amounts seen recently in the media but it’s still a profit and a modest one at that.

In regards to a price bubble who knows! All I know is that I won’t be investing in palladium while it’s on a bull run. Added to this we buy and sell gold and silver under the prerogative of wealth protection and hedging inflation and palladium doesn’t fit the bill, plus for our customers it incurs VAT whereas gold is exempt. On the flip side for speculative investors palladium demand looks like it’s here to stay (for now) but take stock of your reasons for investing and go from there.

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