This was truly an historical week for traders of the precious metals. Both gold and palladium made substantial and strong upside moves resulting in a all-time new record high for palladium, and gold reaching a seven-year high.
There are distinct differences in the rationale and reasons that these two metals had such strong gains. In the case of palladium, it is a simple issue which revolves around a growing demand, and a diminishing supply. A report published by Johnson Matthey, one of the largest refineries of precious metals worldwide stated that the deficit between production and demand for palladium will continue to grow, and widen in 2020. It is for that reason that we have seen palladium prices rise in a parabolic manner since July 2018. In fact, the low achieved on a monthly chart during July 2018 was just above $800 per troy ounce.
Currently palladium closed today at $2,614, after factoring in today’s gain of 1.56% or $40.10. On a monthly chart it has hit an all-time record high of $2,746, just $132 above today’s closing price. Based upon the information contained in the report by Johnson Matthey we could see palladium continue to rise in price.
The rationale is that both Europe and China have begun to implement higher standards in terms of emissions released from cars and trucks containing internal combustion engines. Palladium continues to be the most effective way to reduce hydrocarbons and nitrogen oxides which are byproducts of burning fossil fuels.
Palladium is one of the few precious metals that has a price dictated almost completely by supply versus demand. According to the Visual Capitalist, “The current price of palladium is driven by fundamental supply and demand issues, not investor speculation. Between 2012 and 2018, an accumulated deficit of five million ounces has placed pressures on readily available supplies of above-ground palladium.”
Gold also had a historical breakthrough when early this week it broke and closed well above the elusive and psychological level of $1600 per ounce. The reason behind this move is completely different than palladium’s reason.
With the coronavirus continuing to spread not only throughout China, but now slowly to other parts of the world. There is a genuine concern that this will lead to a global issue. Currently there is no vaccine or cure for this epidemic and although it has been primarily been affecting China, this week many other countries reported new cases of the disease.
Today the New York Times reported that the coronavirus outbreak deepened its toll on global business. It cited the fact that “The disruption of China’s manufacturing network, and slowdown of its economy, has rippled through to the airlines, automakers, tech companies and more.”
Until this epidemic can be contained from spreading it will continue to have the potential to disrupt economies around the world. More than 76,000 cases have been reported worldwide, and although the vast majority are from China.
Wishing you as always, good trading,