Last February, I wrote that palladium could be 2019’s Bitcoin bubble. All the talk about the Chinese buying more cars with palladium catalytic converters (pollution control devices) flew in the face of reports of declining car sales in China. And that’s not to mention the lightning-fast adoption of electric vehicles (EVs) in China. This week, the palladium bubble popped.
As you can see, this isn’t just a price fluctuation, but a major breakdown in palladium’s upward trend. Given the reported deceleration of the Chinese economy, this makes perfect sense to me.
Now, as per Wednesday’s article on the Chinese stimulating their economy, this could be reversed. But it hasn’t been yet—and it may take some time for a China rebound to become visible. In that time, more and more EVs will come to market. I read the other day that Chinese cities are deploying about 1,900 electric buses per week. I would not count on Chinese economic stimuli sending palladium back up.
It could also be that automakers are switching back to platinum for catalytic converters far faster than palladium bulls thought possible. I’ve long thought this could be done, since the same manufacturers used platinum before switching to palladium. They have the know-how. They may even have kept any different equipment needed in storage, ready for reuse. If I’m right about that, they certainly had ample incentive over the last year to dust that equipment off and switch back to platinum—which works better anyway.
Both of these factors argue against betting that palladium will recover its recent lofty heights. And it remains to be seen if Chinese efforts to stimulate their economy are successful. This bubble has popped.
Time to move on.
I should stress one more thing: palladium prices rose above gold prices this year, but that didn’t make palladium a safe-haven asset. It certainly didn’t make it a monetary metal. Palladium didn’t soar because it became more “precious” than gold. It was driven by a supply crunch crashing into rising demand.
This is an industrial metals story.
That’s important because palladium’s downturn should not be seen as a red flag for precious metals.
It should be seen as a great big red flag for industrial metals—if it means the slowdown in China is worse than most investors thought.
This bears close watching, as it has make or break importance for commodities investment decisions coming up this year. I’m watching this one like a hungry wolf.
Could I be wrong about palladium?
Sure. No one can see the future. Maybe palladium will make new highs if the US and China announce a new trade deal.
But why take the chance on what is still a “buy high and pray hard to sell higher” play, when there are plenty of “buy low to sell high” opportunities on the market?
What would I buy instead? Well, that’s what subscribers to The Independent Speculator pay me to help with. But you have my take on the market.
Friday, March 29, 11:48am, EDT, 2019