Two weeks into the New Year and what’s the best performing commodity so far?
Clue: It’s not gold.
Palladium, the natural resource star of 2019 with a 55% gain, is once again leading the pack, with a return of nearly 10% year-to-date.
Palladium’s futures set an all-time high last Thursday while its spot price raced to a new peak on Monday. Yet, its 2020 debut has been restrained compared to last year’s pinnacle, where it hit a streak of record highs toward the end.
Palladium: Less Dazzling Than Gold, But More Even In Run
The more dazzling story in precious metals this year has been that of gold. Along with Wall Street’s record highs and volatile prices of oil, gold has been top news over the past two weeks.
Everyone’s favorite safe-haven started the year on a steady rhythm from 2019’s 18% gain, before spiking to near 7-year highs above $1,600 per ounce on the U.S.-Iran conflict. Despite that, gold is now up just about 1% year-to-date, retracing its highs from the tamp down in Middle East tensions.
Palladium, meanwhile, ran a more even race that has kept it ahead not only of its peers in precious metals but also the rest of the natural resource complex.
An ingredient for cleaner emissions and better performance from gasoline-powered engines, palladium has been boosted again in the past two weeks by a supply squeeze in major producing countries South Africa and Russia.
More Miners Keen To Explore Palladium
“With the majority of the world’s palladium produced by a single company – Russia-based Norilsk Nickel, which was responsible for 41% of global production in 2017 – other miners are looking to develop new projects to challenge this monopoly,” said JP Casey, analyst at the Mining Technology blog.
Palladium’s outsized rally over the past two years has encouraged a number of new players to step onto the global palladium stage, with miners of all sizes suddenly interested in the metal, Casey said.
“However, the bubble could be set to burst, as the automotive industry, which has been singularly responsible for the growth in demand for palladium, might be cooling on the metal’s potential, as supply begins to catch up to demand,” Casey said.
“With new palladium mines already in the permitting, or even operating, stages, questions remain about the future of palladium, and for how much longer it will be a strong investment,” he added.
“Strong Buy” Recommendations For Palladium
On Monday, spot palladium saw a final trade of almost $2,130 per ounce, up $188, or 9.7% on the year. It hit a record high above $2,148 earlier in the day.
Investing.com’s Daily Technical Outlook is recommending a “Buy” on spot palladium. While Monday’s record high has also blown past the $2,138 resistance that Investing.com projected for spot palladium, a settlement at that level could still mean a further gain of $50 or 2.8%.
For 2019, spot palladium gained 48%. Palladium futures settled Monday’s trade at $2,079.10, up $167, or 8.7% from last year’s close. They hit a record high of nearly $2,113 on Jan. 9. 
Investing.com’s Daily Technical Outlook is recommending a “Buy” on palladium futures too. It projects a top-end resistance of $2,085 for spot palladium — a modest gain of $6 or 0.3% above Monday’s close.
Palladium futures settled 2019 trade up 55%.The surge in demand for palladium has seen all manner of miners flock to the metal. Canadian miner Ivanhoe has completed a feasibility study at its Platreef mine in South Africa, a project in which it owns a 64% stake, and aims to produce 219,000 ounces of platinum a year, Mining Technology said.
The blog reports that the Lac Des Illes mine in Canada has restarted production in 2010 after a two year hiatus. The mine’s owner, North American Palladium, plans to continue underground operations until 2027, and produce 2.32 million ounces of the metal over the next eight years.
Analysts Warn That Auto Demand Could Slow
While palladium’s constrained supply could further support prices, carmakers could also look to alternatives, say analysts at Bank of America Merrill Lynch. They warn that automakers could struggle to find more palladium in the next few years as global supply was set to remain flat at about 10.2 million ounces a year.
“Carmakers are starting to look into substitution. It will probably take another 12 to 18 months,” Michael Widmer, an analyst at Bank of America, told the Financial Times. “You can get hold of palladium but you have to pay up for it.” He added:
“The quicker they do the substitution, or re-jig the catalysts, the quicker the rally will ultimately come to an end.”
Analysts say one of the best alternatives to palladium would be platinum, which trades at a discount of more than $1,000 an ounce.
Both are essentially auto-catalysts and emission purifiers; only that platinum is used in diesel engines, while palladium works best for gasoline-powered cars.
But while talk platinum substituting palladium has often surfaced in the past, automakers have argued that entire engine and emissions processes might have to be retooled for such purposes. This might incur time and expenditure that wouldn’t be beneficial, compared to palladium’s relatively small cost in a car.