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Platinum and palladium have risen sharply in price over the past year. Platinum price hit its highest level in nearly three years, while palladium price is at an all-time high. Palladium even increased in value by 50% last year and continues this trend with an increase of 25% since the beginning of this year. Is there a bubble in palladium? And is investing in platinum therefore perhaps a better alternative?
Both precious metals have been in the spotlight again in recent years because of their application in the automotive industry. Car manufacturers incorporate these precious metals into catalytic converters, which reduce the emission of harmful gases. Due to stricter environmental legislation, car manufacturers need more and more of these precious metals. In the palladium market, this creates a structural shortage, which drives the price up even further.
This week, the price of a troy ounce rose palladium to $2,395.71 per troy ounce, making the precious metal twice as expensive as platinum. This is remarkable, given that the latter has historically tended to be more expensive. From 1977 to the present, platinum was on average almost three times as expensive as palladium, now only 0.45 times. In fact, in recent decades, the ratio has never been as extreme as it is now. The graphs below show the ratio since 1977 and the price development of both precious metals.
Price development of platinum and palladium since 1977
Platinum has never been so cheap compared to palladium in recent decades
The price of palladium is being driven up by a structural shortage in the market. For example, production in South Africa, one of the world's most important producers, has fallen sharply in recent months. At the same time, demand for the precious metal is very high, due to strong car sales in Europe and a planned tightening of environmental requirements for cars in China. Still, according to Commerzbank analyst Carsten Fritsch, this is not enough to explain the extreme price increase of the precious metal. "The dynamics are strong, but no one can tell me that these are just fundamentals. This has already become a bubble", he told the Bloomberg.
At the moment, car manufacturers use more palladium than platinum, but due to the tightness in the market and the high price, they may decide to switch to the cheaper platinum. This precious metal is less expensive, but it does have upside potential if demand from the automotive industry picks up. If we compare the prices of both precious metals and place them in historical perspective, platinum seems to be the most attractive option to invest in at the moment.
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Disclaimer: Holland Gold does not provide investment advice. This article is for informational purposes only and is not intended as investment advice. Past performance is no guarantee of future results.
