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Palladium surged to a record high overnight as a sustained supply deficit boosted the autocatalyst metal, while gold rose to its strongest since April on a lower dollar.

Spot palladium, which traded as high as $US1,458 per ounce, was up 1.8 per cent at $US1,457.

The deficit in the palladium market will widen dramatically this year as stricter emissions standards increase demand, autocatalyst manufacturer Johnson Matthey said in a report last week.

‘The market is fundamentally strong,’ Julius Baer analyst Carsten Menke said.

‘(The) ongoing deficit and autocatalyst producers saying they are not seeing broad-based substitution from palladium to platinum really reinforce the prevailing positive sentiment.’

Both metals are primarily used by car-makers in catalytic converters, but platinum is more heavily used in the diesel vehicles, which have fallen out of favour since the Volkswagen emissions-rigging scandal broke in 2015.

Unlike platinum, palladium has benefited from the switch away from diesel engines and expectations for growth in hybrid electric vehicles, which tend to be partly gasoline-powered.

This has helped cushion the metal from the impact of falling car sales across the globe.

‘Industrial demand is good, but not booming considering how weak the car markets are. (However) the case for a multi-year deficit is much more compelling, and there is a very good price trend, attracting a lot of investment demand,’ Menke said.

While prices are likely to climb in the short term, ‘in the longer term, say the next 12 months, assuming global car sales fail to rebound as the global economy slows, prices will be pushed back,’ he said.

Meanwhile, spot gold rose 0.4 per cent to $US1,326.15 per ounce, having earlier hit $US1,327.64, its highest since April 25.

US gold futures rose 0.6 per cent to $US1,329.70.

Helping bullion’s advance, the US dollar backed away from a two-month high hit last week on rising optimism for a US-China trade deal.

A trade resolution will likely increase the yuan’s value and in turn, demand from China, Forex.com analyst Fawad Razaqzada said.

‘Also, a resolution is (US) dollar negative as the US government will decide to lower import tariffs, which will pull import prices down, causing inflation to fall and reduce the need for the US Federal Reserve to increase interest rates.’

Investors will be looking ahead to minutes of the Fed’s January policy meeting on Wednesday for further clarity on interest rate hikes this year.

Higher rates tend to weigh on non-yielding gold.

Among other precious metals, platinum was unchanged at $US802 per ounce, while silver gained 0.2 per cent to $US15.80.