Posted By Isaac Nuriani
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Lately, investors in palladium coins and bars have likely gotten accustomed to the metal’s price heading in just one direction: south. The drop has been fairly sharp in recent months, touching a five-year nadir. However, a recent Barron’s article points to of a potential reversal in palladium’s fortunes.
The China Syndrome
The softness of palladium prices –weaker than those for gold and the other precious metals – arises in large part from the slowing economy in China. Palladium’s price is substantially supported by industrial demand rather than demand for collectibles. About 75% of the metal’s production goes toward gasoline-engine catalytic converters that lower toxic emissions. The recent stock market swoon in China put a lid on consumer activity, including the purchase of automobiles, which in China is dominated by gasoline-powered cars. In August, Chinese vehicle sales fell 3.4 percent from that of the previous year, following declines in June of 3.4% and 6.6% in July. Unfortunately, when the auto industry catches a cold, palladium often comes down with pneumonia.
Uncle Sam Rising
Now, Barron’s reports that analysts are forecasting a reversal in palladium prices, although they see a bumpy flight path for prices as they rise. The cause stems from the U.S. car market, which is exhibiting signs of life. This is likely to counteract the weakness caused by China’s slowing economy. As of this writing, the rate of U.S. truck and car sales is hitting a 10-year high. Another factor might be a general strengthening in all of the precious metals, especially gold. The reason – continued low bond yields. With the Fed postponing rate hikes, bonds are providing little competition to the precious metals. A whiff of recession might ignite the precious metal sector.
Palladium prices have already rebounded from their recent lows. For example, the leading NYMEX palladium contract recently sold for $667/troy ounce, a 26% boost above its August 26 low of $529. The train may be leaving the station, but it’s not too late to climb onboard. One bullish prediction reported by Barron’s puts palladium prices at $710 by the end of this year and $975 by the end of next. One large bank predicts a 5% yearly increase in China’s palladium imports until at least 2020.
If you invest in palladium, gold, silver or platinum, you’ll want to consider these facts when deciding whether to add more metal to your IRAs. If we are indeed at an inflection point, precious metals might be the next hot market.
*photo credit-Invest News Network
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