Projected shortage of palladium lifts prices nearly to all-time record high

While all eyes have been riveted on gold and cryptocurrencies, the metal palladium is at a record high and isn’t showing signs of reversing this upward trend. Palladium is much rarer than gold and may be becoming even rarer. Its very rarity has kept the price of palladium volatile and, thus, a less popular investment choice than gold and silver. That may be changing. At this time, both palladium and platinum are outperforming the rare-metals industry’s long-time favorites, gold and silver.

Palladium is a cousin to platinum, and like palladium, it’s widely used by the automobile industry and jewelry market. Palladium is used primarily in converting noxious automobile gases into safer gases such as nitrogen oxide. There is a great need for palladium. Yet a looming shortage is boosting the price of palladium to an all-time high. Investors are counting on another bull year.

The automobile industry worldwide is becoming steeped in regulations following demands for cleaner car emissions. The price of palladium surged 56 percent in 2017, elevating it to one of the best-performing metal commodities. The increased demand and anticipated shortage has the automobile industry anticipating a million-ounce deficit of palladium. Equally problematic, South Africa, a major palladium supplier, has noted that its new South African Mining Charter might serve as a disincentive for major investors.

Emerging markets such as East Asia and India have seen an increase in personal income, which is expected to reflect a substantial growth in their automobile fleet. Global auto sales have seen a record year. China’s bourgeoning auto market is expected to directly affect the need for more palladium. These emerging markets will increase the demand for and consumption of palladium even more just when availability appears to be at its lowest.

Russia’s Nornicket, one of the world’s major palladium producers, has seen palladium perform exceedingly well in 2017. Palladium mining is responsible for 30 percent of Nornicket’s total revenue, a total of $1.17 billion. Nornicket’s stated marketing strategy is to keep palladium available to the market before the market starts looking for a substitute commodity. At Nornicket, palladium is positioned for another preeminent year. It is expected to continue outperforming its rare metal rivals. However, the exact amount of palladium reserves in Russia are unknown. If those reserves run out, it will only exacerbate an already critical shortage and drive the price of palladium higher.

The 2017 bull market has been a boon to financial assets, such as stocks and bonds, and has definitely grabbed investor’s attention. The stock market has hit an all-time high of 26,000. While investors are understandably jubilant, there is concern about inflation for 2018. We may see an inflation rate at above 2 percent, which has not happened since the 1970s.

The US is seeing near zero unemployment for the first time in decades. Many companies in 2018 are struggling to hire employee for low-paying, entry level jobs, forcing them to hire low-level employees at a higher salary. This push for higher wages will logically result in companies increasing their prices. Then, there’s the current anticipated tax cut, a record tax cut during a time of low unemployment. All these factors will like result in inflation in 2018.

If inflation happens, it’s the Real Assets, such as tangible commodities, that will benefit. Financial Assets, such as stocks and bonds, will likely suffer.

This makes tangible assets, such as metals, an excellent buy at this time. During times of inflation, it’s commodities that increase in value. Rare metals will reap the benefit when stocks start reacting to inflationary conditions. And in 2018, palladium appears to be the metal everyone wants as a hedge against increasing prices and decreasing value of Financial Assets.