There’s talk that palladium may soon see higher prices than gold. I’m skeptical, but it could happen. If it does, I think it will be brief—and it won’t be because of permanent changes in either metal’s nature or market. Palladium becoming temporarily more expensive than gold won’t make it a monetary metal or a safe haven asset.
You may recall from my latest interview with my friend Rick Rule that he’s very bullish on palladium. His reason: soaring car sales, primarily in China, but also in India. I see the logic. Both countries have huge pollution problems and favor palladium pollution-control devices in their cars. Both have growing and increasingly wealthy populations that want cars. Meanwhile, most palladium is produced in Russia and South Africa, both of which are problematic—and already not keeping up with demand. Therefore, palladium should rise.
I agree with this reasoning, but not the conclusions. I fear Rick may be projecting too high a rate of growth in demand for internal combustion engine (gas and diesel) cars and underestimating the growth in demand for electric vehicles (EVs). Porsche’s recent announcement that it’s increasing planned production of its first all-electric car, the Taycan, due to overwhelming demand is but one of many data points showing just how massive the tidal shift towards EVs is. And it’s accelerating.
Now, I get that it will take years for EVs to replace gas cars, even in a place known for making quick changes like China. But in the near term, there’s another factor: the ongoing trade conflict between China and the US.
The Chinese are famous for quick belt-tightening when their economic outlook dims. If the trade dispute causes car sales growth in China to stagnate for even a year or two, the landscape could be quite different by the time it’s over. By then, Nio (the “Chinese Tesla”) and many other companies will have models available to Chinese consumers that could absorb all the growth in car demand.
I suspect that many people just can’t believe how quickly the adoption of EV can and likely will accelerate. I think it’s a mistake to look at the change as though it were just a new type of car being introduced, like station wagons or SUVs. I agree with the view that EVs are essentially computers on wheels. They are evolving and improving like computers, not cars.
I think even my own projections for EV adoption will soon be shown to be far too conservative.
That’s fine, because optimism is far more dangerous than caution—but it could eat palladium’s lunch in record time.
Fortunately, I don’t have to bet that Rick is wrong. For now, I’m happy to simply refrain from betting that he’s right.
We’ll see the truth of the matter soon enough.
Friday, December 7, 6:43am, EDT, 2018