(Mike Gleason, Money Metals Exchange) Gold and silver markets are once again getting overshadowed by wild price moves in lesser known metals – in particular, palladium and rhodium. Both are used mainly in emissions control devices for automobiles. And both are in extremely short supply.
A liquidity crunch over the past few days has driven an explosive spike in rhodium to nearly $10,000 per ounce. That’s nearly $4,000 higher than where it started the year and ten times higher than where it traded just a few years ago.
The rhodium, palladium, and platinum markets are heavily dependent on South African mines for supply. But recurring power outages and other dysfunctions in the country are crimping mining output.
Palladium prices shot up to $2,500 an ounce mid week in volatile trading and currently come in at $2,425 – up 5.2% since last Friday’s close and up nearly 25% so far in the early going of 2020.
As palladium continues to set records, so does its rising premium over its sister metal platinum. Palladium now sells for nearly 2.4 times the price of platinum. The opportunity for it to narrow in favor of platinum appears good given that one can often be substituted for the other in catalytic converters. When that starts to happen in a big way is another question.
But the trade has become so lopsided that a powerful squeeze on the platinum market could be triggered at any time. As of this Friday, platinum trades at $1,011 per ounce and shows a weekly decline of 1.5%.
Gold is up now by 1.0% for week to trade at $1,574. And finally, silver is unchanged for the week at $18.11.
So can gold and silver investors look forward to a massive price spike in the near future like the one playing out in palladium and rhodium? Very likely, their day will come.
As central bankers continue to monetize ever-growing sums of debt and pursue negative real interest rates, the value of paper currency will go down versus hard money.
It’s a point reiterated this week by billionaire asset manager Ray Dalio. In an interview with CNBC from Davos, Dalio declared that cash is not where he wants to be.
There is no doubt that cash will depreciate over time. What is less certain is which assets Federal Reserve notes will depreciate against the most.
In recent years, the stock market has fared well while most commodities have not. However, even as food and energy costs have been held down, healthcare, education, insurance, housing, and other costs of living continue to move relentlessly higher.
We can only imagine what things would be like for consumers if crude oil and grain prices were going parabolic like palladium is. Since palladium only represents a small portion of the total cost of an automobile, most consumers feel no direct impact.
But they would be wise to pay attention to what’s happening in the palladium market – because it may be a precursor to what will happen in other markets in the years ahead. Declining oil rig counts and chronic under-investment in copper mines, for example, could lead to supply crunches that put enormous upward price pressure on all manufactured goods.
A reemergence of inflation fears would, in turn, drive safe-haven investment for gold and silver. As we’ve said before, it will take more than a geopolitical scare to drive a major trend.
The big scare this week: the deadly Coronavirus in China. It has the potential to spread rapidly and perhaps even drag down the global economy if it is not contained. There is currently no vaccine for the virus. As investors weighed the risks of a possible global pandemic, the stock market experienced some gyrations.
Whether the Coronavirus remains a front page story in the weeks ahead remains to be seen. But long-term precious metals investors can benefit from focusing on the underlying drivers for gold and silver that the mainstream media isn’t yet covering.
