
The two lesser lights of the precious metals market…
Yet no less intriguing than their illustrious cousins
My first spread bet was in June 2000 on Vodafone. Since then I have kept a record of every single one of the 2033 trades made since then. During the first five years, I mainly concentrated on shares and indices, with the occasional index option appearing in my spreadsheet. It took five years before I traded a precious metal in February 2005. After making losses on this shiny commodity on my first couple of trades, I then had one of my most profitable trades out of my 2034 deals to date. If you were to conduct a poll on which of the four most traded precious metals it was that I had gone long of (bought), I would hazard that less than 1% would have guessed Palladium. And even fewer would have predicted that I had shorted (sold) Platinum at the same time.
Gold followed by Silver are far and away the most heavily traded precious metals in the world and have been for millennia. In Rows 5 and 6 of Groups 8 to 10 of the Periodic Table sit the lustrous commodities that go by the name of the PGMs or the Platinum group metals; Platinum, Palladium, Rhodium, Osmium, the wonderful named Ruthenium and Iridium. The first two mentioned trade fairly actively on US futures markets, despite most of these metals being mined in South Africa and Russia.
Most people would associate platinum with jewellery and many people sport beautiful rings embossed with stones. However, its primary use (50%) is in catalytic converters for cars, trucks and buses. If you have a diesel car, truck, van or bus, it is almost certain to use Platinum as the metal of choice for converting away much of the noxious gases within the combustion process. Platinum’s uses also cover a remarkably broad range from optical fibres, spark plugs and pacemakers to dental fillings as well as being a catalyst for improving the efficiency of hydrogen fuel cells.
The cousin sitting above Platinum in the periodic table is Palladium. It shares many of the same properties as Platinum in that it is used for jewellery, dentistry and, above all, catalytic converters. Palladium is the more popular choice for petrol-driven vehicles.
And it is this fact that has seen the supposed poorer relative by a third this year.
In fact, similar to the theoretical poll above, not many people would know that Palladium is at the top of the Commodity Charts in 2017. It has outperformed not just all other metals, but also raw materials.
A double whammy of the Volkswagen Diesel Emissions scandals, with all their repercussions impacting the western world’s demands for diesel engines, and the buzz around the much faster than anticipated enabling of the western world to access increasingly efficient electric cars (Tesla Model 3 etc.) now sees speculators at their most bullish on Palladium since 2014. The consensus is that the age of diesel land transportation is coming to an end explains why Platinum has hardly risen this year (just 3%) whilst Palladium is up 29%.
The Platinum / Palladium ‘pairs trade’ (where you take a long (buy) position in one and a short (sell) position in the other) is very much on Pelican traders’ minds at the moment and it’s not because Pelican’s Platinum / Palladium pairs trade has an alliterative roll to it.
In this case, clients are mostly holding a long Palladium (more used in petrol catalytic converters) and a short Platinum (diesel catalytic converters) position. They seem to be on to a winning trade at the moment given global anti-diesel sentiment, coupled with depleted Palladium stocks being to their lowest levels in 15 years.
The chart below shows how Palladium has been on a tear compared to Platinum
This has resulted in the ratio between the two protagonists of the PGM metals shrinking to its smallest level in two decades. It is now close to parity. Platinum closed on Friday at $964 per ounce, whilst Palladium was at $880 per ounce.
Looking at this chart, you would not think it unlikely that parity could be achieved in the coming months.
At the very beginning of 2001, Palladium was trading above $1,000 per ounce and Platinum was close to $400 per ounce. i.e Palladium to Platinum was 2.5:1
In the first half of 2005, a total reversal and more of the ratio had occurred whereby Platinum was at $1,000 per ounce and Palladium had plummeted to $200 per ounce. i.e. Palladium to Platinum had moved from 2.5:1 through to parity and away to 1:5!!
Back to the rationale behind my Palladium trades in 2005. I had seen the Palladium / Platinum ratio chart back to its previous high of 1991/2 when it was 1:5. In 2005, it looked like a double top and there were several articles in the press stating that Palladium was now in huge demand from car manufacturers across the globe who were struggling to afford the price of a four-figure per ounce, Platinum.
My pairs trade of buying Palladium and selling Platinum came good when Palladium doubled from $200 to $400 within 6 months as Platinum rose comparatively modestly which resulted in the ratio dropping close to 1:3 in early 2006.
Looking at the ratio now sitting close to parity, nobody truly knows which PGM metal will be the more valuable in 1, 2 or 5 years. The majority have their money on Palladium in the short term, but Platinum has twice in the past 25 years been 5 times as expensive as its neighbour above on the periodic table. Will the herd be proved correct or will the markets do what they’re wont to do and head in the opposite direction to consenus?
One thing is for sure, however, and that is if Mr Elon Musk is the world’s richest man in 5 years, you can bet your bottom dollar that neither Palladium nor Platinum will be anywhere near $1,000 per ounce.
The dawn of the electric cars for the masses is upon us and that certainly bodes ill for both of these two lesser-known shiny precious metals…
Whatever your view on PGMs or other popular ‘pairs trades’ like Alphabet / Amazon, Apple / Microsoft or FTSE / Dax, only within the Pelican network can you build your own discussion groups or seek out other groups where you can chat, see others’ positions, copy or even oppose / challenge trades, all within a unique FCA-regulated environment.
Start your own debates today, whether amongst your friends, like-minded investors you discover within the Pelican network or with professional traders!


