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For the first time in more than a decade, palladium is rivalling gold in value, but gold, in itself, has also performed particularly well in 2019.

CHANTELLE KOTZE writes.

Palladium

Palladium prices have continued to surge to new record highs during 2019, topping US$1 800/oz in the second half of 2019 as stricter air-quality rules have boosted demand for the metal, which is used as a catalyst in vehicle pollution-control devices.

This article first appeared in Mining Review Africa Issue 12, 2019
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According to Michael Jones, the President and CEO of TSX-listed Platinum Group Metals, the developer of the Waterberg palladium-dominant project in South Africa, palladium demand has been primarily driven by the automotive industry through the “demonisation” of diesel engines in Europe.

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The resultant growth in small petrol engines and hybrid engines, which are fitted with emission-reducing catalytic converters that require palladium as a catalyst to control pollution, along with the shift away from diesel engines, has benefitted palladium.

Currently the most expensive of all the precious metals, palladium is most commonly produced as a by-product of platinum mining, and supply is thus to a significant extent dependent on platinum output.

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With platinum prices at a ten year low, the supply of palladium as a by-product has consequently been constrained, to the point where the metal has been in deficit since 2012.

Moreover, the Volkswagen emissions scandal has negatively impacted the European diesel market and platinum prices.

While adoption rates of electric vehicles are expected to increase in future, at least half of these new electric vehicles will be hybrid electric vehicles as opposed to full electric vehicles and will therefore still require the use of palladium in the catalytic converter maintaining and even increasing platinum demand in future.

Gold

The gold price broke through the $1 400/oz for the first time since 2013 peaking at just over $1 500/oz in August 2019.

Gold, which remains a safe haven share for investors and acts as a good hedge against turbulent economic times, got a boost for these exact reasons during 2019 which saw the price of this precious metal increase amid geopolitical and trade uncertainty weighing down on global economic growth, as the protracted US-China trade war intensified and while several central banks around the world cut interest rates.

According to the World Gold Council’s Gold Demand Trends Q2 2019 report, sluggishness, exacerbated by trade and geopolitical tensions, continue to cast a dark cloud over the global economy and have made gold and other traditional safe havens more attractive than riskier assets, such as stocks.

Central banks, like other investors, sought safety in gold as they looked to protect themselves in the face of these looming risks.

The World Gold Council reported that nine central banks increased their gold reserves by at least a ton in the first half of 2019, while the Gold Demand Trends Q3 2019 report showed a continuation of this trend with Central banks adding an additional 156.2 t of gold to reserves in Q3, 2019.

The persistent, continuing shortage of palladium and the uncertainty surrounding a potential US-China trade deal has boded particularly well for these two precious metals in 2019.