Understanding Palladium’s Top Performance among Precious Metals



Palladium: industrial or precious?

Among the four precious metals, palladium is the most volatile. But it has also earned the highest returns on a YTD (year-to-date) basis, and it’s been the most resilient for the past few months. Palladium has seen a 16.2% YTD rise, while gold has risen only 8.9% during the same period. These two metals were trading at $1,255.3 and $790.2 per ounce, respectively, as of March 29, 2017.

Palladium has been standing strong despite the curb in imports in China. The palladium import in China slumped between January and February 2017 by almost 48%, as compared to the same period in 2016.

Like silver, palladium is also used excessively as an industrial metal, and its demand can surge based on the economic outlook. Among its metal peers, palladium reacts more or less in sync with other industrials.

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What the ratio stands for

The above graph shows the performance of the gold-palladium spread. 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 (IAU), because more ounces of palladium (PALL) are needed to buy an ounce of gold. This ratio was trading at ~1.57 as of March 29, 2017.

To be sure, the gold-palladium spread has seen its ups and downs over the past few months, but of late, once again, palladium is overtaking gold. Notably, the spread fell substantially in the last quarter of 2016.

RSI levels

The RSI (relative strength index) for the gold-palladium ratio is now 55. Remember, an RSI level above 70 indicates that an asset has been overbought and could fall, whereas RSI below 30 indicates that an asset has been oversold and could rise.

Notably, precious metal mining companies that have recovered from their losses over the past week include Goldcorp (GG), Silver Wheaton (SLW), Royal Gold (RGLD), and Alamos Gold (AGI).

Continue to the next part for a look at the platinum spread.


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