(Commodities And Inflation, Part II.)
In my journey of investment asset bargain hunting on the planet Earth, I realized today I have missed the historic peak of palladium. This precious metal topped middle March by 1,576.60 USD, and after that, fell 18 percent in six days.
Palladium or platinum?
Last time I wrote about crude oil, gold, and copper, comparing them with the US dollar-inflation. My calculations showed the prices of these commodities were overperforming the inflation, these materials could preserve their original values in real terms, and more.
This time I’d like to investigate palladium, but it is not independent of platinum either. And if we talk about precious metals once, though not all are used for the same purposes, better don’t forget to compare with gold and silver.
Precious metals and inflation
So I compared these four metals with the US inflation index, and the result is interesting. Platinum (green line) couldn’t catch up even the inflation (blue line), not even in 30 years, since April 1989. (Monthly data.) Gold and silver performed relatively good, surging to 338 percent and 263 percent of the original 1989 prices, respectively. While overall customer prices in the US are at 206 percent level. (The inflation was at 106 percent in total in 30 years.)
Palladium rose to 856 percent, that means, one ounce is now more than eight-and-a-half times more worth than in 1989. This is multiple times more than inflation. But the history of palladium price seems to be full of steep and strong price spikes, and similar quick price falls after that. It is very instructive to study long term charts, I think.
Depending on the car industry
That’s because I think that even after a 15 percent fall from the peak, it could be a good idea to short palladium. (And maybe also to buy platinum? I’m not so sure.) And also because the current palladium bull market began a couple of months after the infamous Volkswagen emissions scandal (from September 2015), also called “dieselgate”.
(Click for higher resolution. Chart: Stockcharts.com)
Because, palladium is used more in catalytic converters of gasoline cars, while platinum more in diesel systems. But as we saw on the first chart, palladium was surging also in the years before already.
Recession and other benefits
Other factors that can influence palladium (and platinum) prices negatively:
- Global recession, car sales falling (already in progress).
- Car-sharing extends in an increased pace (fewer cars required).
- Engineers may possibly substitute the expensive palladium with the cheaper platinum.
- If electric cars are spreading more quickly than estimated.
But, I know, the opposite can also happen. This very volatile metal can be a big trap for both sellers and buyers. I feel more room downstairs than upstairs, and I think I will short palladium tomorrow.
My fear of missing out?
Last year, my idea about shorting lumber was a very good one. But I didn’t do anything, I missed the opportunity completely. I hope, this time I ‘ll make it better.
(Another important factor is if the prices of a commodity are in a state of contango or backwardation. Palladium has only a small backwardation at the moment, with September settlement on 1332.0 USD and July, on 1336.5. This means only 0.34 percent.)
Recommended article about the industrial use of palladium and platinum: Platinum boom on the horizon? Not so fast!