Among the four precious metals, palladium has shown the strongest performance, and its market fundamentals are upward scaling. The chronic deficit of the palladium market is a major determinant of its upward price movement. Palladium has seen a year-to-date rise of almost 13.5%, which is higher than the increase in platinum, silver, and gold as of February 9, 2017.
In 2016, palladium was underperforming its precious metal peers, but now it’s outperforming them. The call implied volatility for palladium, which measures the change in the price of a call option with the change in the price of an asset, is close to 30.6% over the past one month.
What the ratio stands for
The above graph shows gold’s performance compared to palladium’s according to 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 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.
The gold-palladium spread was approximately 1.6 on February 9, 2017. Its RSI (relative strength index) was as low as 60. An RSI level above 70 indicates that an asset has been overbought and could fall. An RSI level 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 ETFS Physical Palladium (PALL) and the ETFS Physical Swiss Gold (SGOL). Precious metal mining companies that have recovered from the fall in the past month include Alacer Gold (ASR), Iamgold (IAG), AngloGold Ashanti (AU), and Harmony Gold Mining (HMY).