What Are the Odds?

par·i·ty¹

/ˈperədē/

1. the state or condition of being equal, especially regarding status or pay.

"parity of incomes between rural workers and those in industrial occupations."

the value of one currency in terms of another at an established exchange rate.

What are the odds? Better yet, what were the odds a couple of years ago that gold and palladium would be at parity? I’ll venture to say that if anyone were to have taken that bet, you would’ve received phenomenal odds. However, palladium is the only precious metal to have been worth three times the value of an ounce of gold at one point in history.

When we can look historically at platinum prices, we can see that for many years it was priced slightly above gold, and that was the accepted norm. In fact, there is one point in history when platinum traded over $2,000 per ounce, while gold was only trading at approximately thousand dollars per ounce, which was at the beginning of 2008. Just as interesting is the fact that during that time palladium was trading at roughly $575 per ounce.

Currently, the price differential between one ounce of gold and 1one ounce of palladium has narrowed to under $100. In fact, in today’s pricing, gold and palladium only have a cost differential of approximately $45. At today’s price, you can purchase an ounce of gold for $1,224 per ounce, or you can purchase an ounce of palladium at $1,179 per ounce.

If you look at historical pricing for gold and palladium, in January 2016 an ounce of gold cost roughly $1,100, while an ounce of palladium $447. To say that the price differential of these two precious metals has narrowed would be a vast understatement.

On a technical basis, a case can be made with a high probability that if these two precious metals continued to trade the way they have over the last two years, it’s a matter of when, and not if gold and palladium prices will be at parity. It also points to a high probability that palladium at some point in time in the future will be worth more than gold, ounce for ounce. More importantly, it could be a historical trend that once it occurs will become the new norm when comparing these two precious metals against each other.

Discovered in 1803 by William Hyde Wollaston, palladium is widely used in the automobile industry because of its ability to absorb up to 900 times its own volume in hydrogen.

Currently, one source sites the fact that Russia and South Africa supply 40% of the world’s palladium. However other reports have stated that Russia and South Africa are collectively producing about three-quarters of the world’s mine supplies.

With the current conflict with Ukraine and Russia and the fact that Russia accounts for such a large percentage of the world’s palladium, we could certainly see this precious metal continue to rise and inevitably be valued higher than gold.

Wishing as always, good trading,

Gary Wagner