Palladium rose as much as 5.4 percent to $1,439.29 an ounce. It traded at $1,394.97 by 1:39 p.m. in New York. At the Comex exchange, palladium for March delivery climbed 2.3 percent.
Investors are shrugging off signs of automotive weakness in key markets, with annual car sales in Europe falling for the first time since 2013. China also declined last year and sales in the U.S. barely rose.
The metal will remain in a supply deficit for an eighth straight year, according to Metals Focus Ltd. Palladium’s status as a byproduct of mines in South Africa and Russia means output levels aren’t adjustable to meet short-term demand, despite the surging price.
“Investors appear to be ignoring the fact that weak sales figures have been reported for all major auto markets in recent days,” Commerzbank analysts including Daniel Briesemann said in a note. “Instead, they are seeing news such as the planned widening of a strike to include the platinum mines of a major South African gold and platinum producer as being a good reason to buy.”
Palladium has been rallying impressively while the other precious metals have been side-lined in terms of investor interest for the last couple of years. The collapse of platinum demand following the diesel scandal made the case for more gasoline vehicles and a demand growth cycle for palladium. However, that is not a sufficient reason for the scale of the move in palladium.
A more important reason is the collapse of nickel over the last year. Since Norilsk Nickel is the largest producer of palladium, but sources it as a by-product of nickel mining, the weakness in the latter has been responsible for a supply deficit in the former.
The ratio of palladium/nickel highlights how much palladium has outperformed since 2008.
Meanwhile the nickel price is just starting to pick up following a persistent downtrend since the failed break above $15 in June.
Palladium is accelerating higher and was well of its high today. Downside follow through tomorrow would confirm a peak of at least near-term significance.
Norilsk Nickel is testing the upper side of a seven-year base and a sustained move above $20 would confirm a return to demand dominance beyond the short term.