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Economic Analysis: Ukrainian Crisis Drives Palladium Prices

Article Summary:

  • Palladium prices have hit highs not seen in over a decade.
  • Price can touch $1000 per troy ounce before too long.
  • Fears over Russian sanctions due to the Ukraine crises have driven prices higher.
Palladium Prices Move Higher
Palladium Prices Move Higher

Crude oil prices are sitting near year lows, now that fears regarding Russian/Ukraine tensions would push prices higher have ebbed. However, Ukrainian tensions have put another commodity into play. The price of palladium has soared to levels not seen in over a decade.

Palladium prices opened on Monday near $895 per ounce. We last saw this level on February 22, 2001. Traders are deeply concerned exports from Russia can be restricted thanks to new economic sanctions. Even though these fears might not be one hundred percent rational, we could see prices moving towards $1000 shortly. We are seeing demonstrating concern because Russia happens to be the world’s biggest supplier of the rare metal and Western led sanctions are raising concerns about supply. This is pushing price higher. Much of this price rally was induced by investor fear over possible crippling sanctions.

The reality, these sanctions are not very likely as they would hurt Western manufacturers a lot more than they would hurt Russia’s economy. They also would not have that big of an impact on global supply, even if they did happen. If it does, supply would move out of China and right into the United States. The worries of restrictions are constraining the supply side. Another driver of prices came out of South Africa, where miners went on strike. This is still hurting supply. Despite, what should be more irrational, prices are creeping higher and $1000 per ounce is not out of the question. Right now we are testing a key technical level at $905.

Palladium is very industrial oriented, more so than any of the other precious metals like gold and silver. Global industry commands 80 percent of the demand for this precious metal. It is used in everything from catalytic converters, used in automobiles, to other automobile and high tech uses. As the automobile industry booms again, especially in China and the U.S., demand is going up and supporting the price. We are also seeing stricter emission standards from China demanding more palladium.

These trends in demand has led to a steady 3.5 to four percent rise in demand for palladium and is built into its price. What does this mean? Why has price shot up all of a sudden? Fear over Russian sanctions. Once fear subsides, prices will settle down a bit.

Traders can benefit from rising palladium prices by buying ETFs like the Physical Palladium Shares. An indirect way to invest in this metal is to by equity shares in platinum miners like North American Palladium (AMEX: PAL) or Stillwater Mining Company (NYSE: SWC).

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