Is Palladium A Buy?

By Michelle Smith — Exclusive to Palladium Investing News

Is Palladium a Buy?

Standard Bank recently reported that market participants seem more confident about palladiu m's prospects compared to other precious metals.  They are not alone. Analysts are also expressing optimism about palladium. Barron's quoted Rohit Savant, senior commodity analyst for CPM Group, as saying “we are most bullish on palladium among all of the precious metals.” Three factors that appear to be driving positive sentiments are auto sales, South Africa, and a potential supply deficit.

The latest Commodity Futures Trading Commission report shows that investors are continuing to buy into palladium ETFs, and that open interest on the NYMEX has surpassed last year's average.

HSBC also recently reiterated a forecast of $785/ounce as the average price for palladium in 2012, adding that it anticipates a range of $600 to $900 this year.

Palladium demand

Bullish analysts have expressed expectations for positive palladium demand this year.

Savant projects 5.05 million ounces going into catalysts and 1.3 million ounces going into electronics.

HSBC is projecting automotive demand at 6.022 million ounces, though an estimated 1.6 million ounces will come from recovery. The bank expects electrical, electronic, and chemical demand to consume 1.52 million ounces. Jewelry is expected to consume 425,000 ounces and ETF demand another 400,000 ounces.

Auto demand

Palladium's positive performance largely hinges on demand  from the automotive sector, where the metal is used to produce catalytic converters. Thus far in 2012, there has been some reason for optimism in this regard.

Scotiabank reported that stronger than expected vehicle sales in North America have prompted automakers to schedule a further increase in vehicle assemblies.

In the US, the world's second largest auto market, February's sales numbers beat analysts' expectations, following strong sales in January. It's seen as a positive sign that this strength is occurring in the absence of a stimulus program. With an aging fleet and pent-up demand, the trend is expected to continue as long as the economy holds up.