‘Bubble’ warning for palladium

Palladium’s deficit-driven ascent has some analysts warning of the growing potential for a correction given the rapid sprint upward.

The silvery-white metal used to control harmful emissions in petrol-fuelled cars has surged about 40% in four months, hitting repeated records, as a supply deficit deepens and demand surges.

It’s the top-performing raw material tracked by Bloomberg this year, and the threat of a strike by a mining union in key producer SA has added extra momentum this week.

Yet as palladium widens its premium over other metals – including a near-$700 gap with sister metal platinum – banks, including Saxo Bank and Commerzbank say gains look increasingly unsustainable.

The two metals are potentially interchangeable as pollution-reducing catalysts in vehicles, although switching requires time and money spent on research.

“Palladium has entered into bubble territory,” Ole Hansen, head of commodity strategy at Saxo Bank, said by e-mail.

Spot palladium was little changed at 9.59am in New York. The metal earlier hit a fresh record of $1,558.80 an ounce.

Signs that palladium is starting to be driven by more traditional factors, such as economic data and investor sentiment, raise the probability “that finally the rose-coloured glasses are taken off and prices come back to earth,” said Georgette Boele, co-ordinator of forex and precious metals strategy at ABN Amro Bank. –