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Analyzing the Gold-Palladium Spread

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Gold-palladium ratio

Precious metals prices are facing headwinds from South Africa. The South African rand is falling significantly as the country’s finance minister appears to be facing imminent dismissal. 

Palladium has seen a year-to-date rise of 13.6%, higher than platinum’s rise. In the past 30 trading days, palladium has fallen 6.8%. It’s slipped 1.5% in the past five trading days.

The chart above shows gold’s performance compared to palladium’s performance by way of the gold-palladium spread, or the gold-palladium ratio. The spread measures the number of palladium ounces it takes to buy a single ounce of gold. The higher the ratio, the weaker palladium is compared to gold, as more ounces of palladium are needed to buy a single ounce of gold.

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Spread movements

Although this spread has seen its ups and downs over the past few months, the United Kingdom’s Brexit vote resulted in some relative strength for palladium, which was evident in falling cross-commodity rates. 

Once again, palladium is overtaking gold. The spread fell substantially after July 2016. Remember, a rise in the gold-palladium spread indicates strength for gold, while a fall indicates strength for palladium.

RSI levels

The gold-platinum spread was ~1.9 on October 18, 2016, and its RSI (relative strength index) was 61. An RSI level of above 70 indicates that an asset has been overbought and could fall. An RSI level of below 30 indicates that an asset has been oversold and could rise.

Fluctuations in these precious metals are closely reflected in funds such as the Physical Palladium Shares ETF (PALL) and the iShares Gold Trust ETF (IAU). The precious metals mining companies that have fallen in the past month include Kinross Gold (KGC), Alacer Gold (ASR), Hecla Mining (HL), and Eldorado Gold (EGO).

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