Palladium, gold’s lesser known sister metal, extended its rally to new record highs on Wednesday in a buying frenzy that has been fueled by a major shift in the automotive industry.
For the first time in 16 years, the price of palladium has topped gold. The shiny, silvery metal used in primary manufacturing jumped $24.21, or 2%, to $1,250.22 an ounce on the New York Mercantile Exchange. The spot price peaked at $1,261.80, according to Bloomberg, and is now trading 51% higher than its August low.
Palladium’s technical indicators show strong momentum in the underlying price, though the relative strength index (RSI) suggests that the market has entered overbought territory.
At the same time, spot gold drifted slightly lower to $1,237.16 a troy ounce. The yellow metal has gained significant ground over the past four weeks, with prices rebounding 3%. However, gold’s returns have been less reliable with the seven-year bear market showing little signs of abating.
The crossover in price has been largely driven by improving fundamentals in the palladium market and a prolonged supply crunch that is making the cost of borrowing extremely expensive. As Bloomberg notes, “Holdings in exchange-traded products backed by palladium are at the smallest in almost a decade as investors pull the metal and offer the commodity for lease.”
The cost to borrow the metal for one month has reached a record high of 22% amid the buying frenzy.
Palladium is a key commodity in gasoline-powered automobiles and is expected to see higher input in the future as markets shift away from diesel fuel. At the same time, the shift toward electric vehicles is also expected to catalyze the use of palladium in the foreseeable future. This has created a severe shortfall of available palladium, with the London-based Metals Focus Ltd. forecasting a deficit of 1.4 million ounces next year.
As Hacked reported last month, investors should keep a close eye on raw materials over the next two years as the market for electric cars heats up. The International Energy Agency (IEA) expects there to be 125 million electric vehicles on the road by 2030, up from just 3.1 million last year.
The supply crunch isn’t just limited to palladium, but includes primary metals such as copper, aluminum and nickel. Following years of underinvestment, the price of raw materials could skyrocket next year as demand grows and investors scramble for available supplies.