Palladium demand in China

Palladium’s movement often diverges from that of other precious metals. Palladium rose 0.5% on Monday, despite other precious metals falling. Palladium often follows the industrial side of the market. About 80% of industrial palladium is used for catalytic converters in automobiles. With easing US-China tensions, the possibility of higher industrial demand in China has risen. The country’s car sales are improving, and China is a big market for General Motors (GM), Ford, and many other multinational brands. In 2017, China (FXI) sold ~27.5 million automobiles, and it is expected to sell 30 million units by 2020.

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Industrial or precious metal?

Palladium often tilts more toward the broader industrial market (DIA) than the precious metal market. It was the top performer among the four precious metals in 2017. Although it has fallen 10.4% this year, it is the most volatile of the precious metals and could revive quickly if industrial demand rises.

The palladium-based ETFS Physical Palladium Shares ETF (PALL) rose 2.4% on May 21 due to palladium rebounding. Watching gold and palladium can be helpful in reading palladium markets.

On Monday, the gold-palladium spread was 1.3, indicating that it would require almost ~1.3 ounces of palladium (PALL) to buy an ounce of gold. The ratio fell steeply in 2017 as palladium approached par with gold (GLD). The spread’s RSI (relative strength index) score is 24.8, indicating it could revive.

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