In July 2020, the price of palladium jumped from a low of $1,851 per ounce to a high of $2,242 per ounce, a 21 percent increase over just a few weeks. The price of the precious metal has been experiencing steady significant gains in the last five years, tripling from approximately $600 per ounce in August of 2015, but recent increases represent a substantial acceleration of this trend. The precious metals experts from First National Bullion, the palladium, silver, and gold dealers San Diego collectors rely on for outstanding quality and service, offer this guide to understanding the recent increase in palladium’s value.
The Source of Palladium’s Value
Global economic concerns have caused all precious metals to outperform forecasts in recent weeks, but in addition to the common applications for precious metals (such as investment, jewelry, electronics, and dentistry), palladium’s value is driven by extensive demand from the global automotive industry. Palladium is an autocatalytic element and an essential component in automotive catalytic converters, devices that reduce harmful emissions from cars and trucks. Catalytic converters are mandated by automotive and environmental regulations in many jurisdictions, creating a very large global industry in which palladium is absolutely essential.
Several factors have contributed to the demand for automobiles equipped with palladium-based catalytic converters. Last year, several Chinese cities and provinces significantly tightened their emissions regulations, expanding the markets in which emissions-controlling devices like catalytic converters are required. Simultaneously, the European market has been experiencing a gradual shift in consumer preferences from diesel automobiles to gasoline-powered cars and light trucks. This has created greater demand for palladium-based gasoline catalytic converters at the expense of the platinum more commonly used in diesel vehicles.
At the same time these market forces have increased demand for palladium-based emissions devices, the overall market for automobiles has increased as well. While the global economic slowdown has affected most industries, stimulus efforts by governments have caused a rebound in the American and Chinese automotive industries. American auto manufacturers have experienced three straight months of increased automotive sales, which have grown faster than economic forecasters had predicted. These recoveries have driven additional demand for palladium by automakers.
The Supply of Palladium Is Largely Inelastic
Producers of other precious metals can respond to increases in demand by investing in production in the form of additional mining operations. But palladium isn’t mined directly—it’s mostly produced as a byproduct of the extraction of other metals. A full 39 percent of the world’s palladium is produced by Norilsk Nickel, a Russian company, as an incidental product of its base metal mining operations.
Because the production of palladium is tied to metals that aren’t experiencing the same surges in value, producers don’t have the option of increasing the supply to meet greater demand. This imbalance results in a rapid increase in value, which may continue as long as the imbalance exists.
Whether they’re veteran palladium collectors or investors looking to buy silver bars, San Diego residents should reach out to the experts at First National Bullion. We offer a huge selection of palladium, gold, platinum, and silver items. San Diego collectors who are looking for the finest-quality coins, bars, and bullion should give us a call at 858-666-6570 to speak with one of our precious metals experts.
The statements made in this blog are opinions, and past performance is not indicative of future returns. Precious metals, like all investments, carry risk. Precious metals and coins may appreciate, depreciate, or stay the same in cash value depending on a variety of factors. First National Bullion does not guarantee, and its website and employees make no representation, that any metals for sale will appreciate sufficiently to earn the customers a profit. The decision to buy, sell, or borrow precious metals and which precious metals to purchase, borrow, or sell are made at the customer’s sole discretion.