How the Gold-Palladium Spread Is Moving Lately



A 17-year peak for palladium

Palladium has been the winner among the four precious metals, having skyrocketed a whopping 57% on a YTD (year-to-date) basis in 2017 as of the time of this writing (December 27). If we look at the performance of gold, silver, and platinum, they’re showing YTD gains of 11.9%, 4.3%, and 2.4%, respectively, as of the same date.

Palladium touched its 17-year peak on December 27 and closed at $1,071.7 per ounce on December 27. Its RSI level was at 77.2 that day.

The major contributor to the rise in the price of palladium is the increased preference for diesel-fueled vehicles over gasoline-powered cars. There are also chances that the physical shortage of the metal could have given a further bounce to it.

Notably, the Physical Palladium Shares ETF (PALL) is known to track the price fluctuations in palladium and has risen ~55.6% YTD.

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Spread reading

When reading palladium markets, it’s crucial to understand the gold-palladium spread, which measures the number of palladium ounces it takes to buy an ounce of gold (IAU). The higher the spread, the weaker palladium is relative to gold.

This spread has been steadily declining over the past year due to the increasing strength of palladium over gold. The gold-palladium spread was ~1.2 on December 27.

RSI level

The RSI (relative strength index) level for the gold-palladium spread was 42.2 as of December 27. Remember, when an RSI level is below 30, there’s a chance that prices could rise. When an RSI level is above 70, it could indicate a decline in price.

These mining companies also closely react to the changes in precious metals. The mining companies that have seen an uptrend in prices over the past week include Alacer Gold (ASR), Hecla Mining (HL), Cia De Minas Buenaventura (BVN), and Barrick Gold (ABX).

In the next part of this series, we’ll discuss call-implied volatility and RSI figures in greater detail.


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