How’s the Gold-Palladium Ratio Moving?



Volatility measure

Among the four precious metals, palladium was the leader until mid-February 2017. Its pace slowed down after that. Palladium has seen a year-to-date rise of 13.2%, while gold has risen 8.6% during the same time frame. These two metals were trading at $1,250 and $773.40 per ounce as of February 23, 2017.

During the past week, palladium fell almost 2.5%. It’s widely used for catalytic converters by the automotive industry. It’s also used for manufacturing electronics and chemical and dental applications. It’s sourced mainly from mine production and recycling. The demand for the metal is strongly outstripping its supply, which is a primary reason there could be a further upswing in the metal.

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What the ratio stands for

The above graph shows the performance 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 because more ounces of palladium are needed to buy an ounce of gold. The ratio is trading at ~1.6 as of February 23, 2017.

The gold-palladium spread has seen its ups and downs over the past few months. However, once again, palladium is overtaking gold. The spread fell substantially during the last quarter of 2016.

RSI levels

The RSI (relative strength index) for the gold-palladium ratio is 45. An RSI level above 70 indicates that an asset has been overbought and could fall. An RSI below 30 indicates that an asset has been oversold and could rise. The RSI for palladium is almost 53.2.

Fluctuations in these precious metals are closely reflected in funds such as the ETFS Physical Palladium (PALL) and the iShares Gold Trust (IAU). Precious metal mining companies that have recovered from the fall in the last quarter of 2016 include Hecla Mining (HL), Kinross Gold (KGC), Silver Wheaton (SLW), and Franco-Nevada (FNV).


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