Palladium stands out in the precious metal complex, hitting 18-month highs due to rising demand from the automotive industry as gold slides to fresh 10-month lows Thursday, below $1,170/oz, and silver holds just above its June lows around $16.30/oz.
Priced at $775/oz Thursday morning, palladium is at its highest since May 2015. Its differential to platinum, like gold trading at its lowest since February at $900/oz, is the smallest since 2002 at just $125.
Palladium's differential to gold, at just below $400, is also at its lowest since May 2015, when palladium traded above $800/oz, its highest in nearly 15 years, at a time when industrial action severely disrupted South African mine production for over six months.
With 80% of palladium use in the automotive industry, the metal has been supported this year from the more bullish outlook in the auto sector. While it has also benefited from the sharp rise in base and bulk metal prices recently, reflecting its primary use as an industrial metal.
According Johnson Matthey, the world's largest platinum and palladium refiner, the global palladium market will record a 20 mt deficit in 2016, from 11 mt in 2015.
Autocatalyst demand is expected to increase by 2.5% in 2016 to 244 mt, a record high, according to JM, helped by Chinese car sales which has benefited from tax incentives this year.
In its November outlook, JM forecast the deficit in the palladium industry to increase in 2017 "even if there is a rebound in recycling volumes and EFT holders continue to liquidate their investments."
"Mine shipments of palladium are predicted to remain flat in 2017, while gross demand in consuming applications -- auto catalyst, industrial and jewelery -- is set to continue its upward march."
Used primarily in the automotive sector, palladium's fundamentals are different to the other precious metals, which have come under increasing pressure from falling investment demand as interest rate expectations grow and the dollar strengthens.
Yet there are concerns the current rally may be overheated and speculative positions too high.
According to the most recent Commitment of Traders data from US exchange COMEX, net long palladium positions climbed 35% to 12,466 contracts in the week to November 22, a seven-week high.
This is in contrast to sharp declines in bullish gold positions, where net length has declined 30% in the last two weeks to nine-month lows, according to COMEX. Silver has fallen 25% in the last two weeks of reporting data, platinum down close to 20%.
"This makes it clear that the increase in the palladium price...was driven for the most part by speculation," Commerzbank said in a note earlier this week.
