What Do the Platinum and Palladium Cross Rates Suggest?



Precious metals fell

As gold plummeted on Friday, it also took its other three precious metal counterparts (silver, platinum, and palladium) along with it. These three metals also retreated due to the possibility of a sooner-than-expected rate rise on the brighter economic figures. Silver remained the biggest loser on Friday with a fall of 3.1%, closing at $19.8. Platinum dropped 1.1% and closed at $1,151.5 per ounce. Palladium retreated 1.4% and ended the day at $696.3 per ounce.

Article continues below advertisement

The comparative performance of these four precious metals can be viewed through cross-commodity rates. The three cross-commodity rates that precious metal investors closely track are the gold-silver spread, the gold-platinum spread, and the gold-palladium spread. We’ll focus on the gold-platinum and gold-palladium spreads in this article.

Cross rates

The gold-platinum and gold-palladium spreads measure the number of platinum and palladium ounces it takes to buy a single ounce of gold. Although this spread has seen its ups and downs over the past few months, the Brexit vote resulted in some relative strength for platinum and palladium, which was evident with falling cross-commodity rates.

Rising rates imply strength for gold, and falling rates indicate strength for platinum and palladium. The platinum-palladium ratio is almost at its lowest since the start of 2016.

Article continues below advertisement

The gold-platinum and gold-palladium spreads were at 1.2 and 1.9, respectively, on August 5, 2016. Fluctuations in these precious metals are closely reflected in funds such as the Physical Platinum Shares (PPLT) and the Physical Palladium Shares (PALL). These two funds rose 28.3% and 23.6%, respectively, year-to-date.

RSI level

As these metals have been on a rise over the past few months, their RSI levels increased substantially. The RSI for platinum and palladium was 67.9 and 69.5, respectively. A level above 70 indicates that an asset has been overbought and could fall. A level below 30 indicates that an asset has been oversold and could rise. Looking at RSI, it seems that palladium may soon be a candidate for a further downward price correction.


More From Market Realist