At the start of the 2013 investing year, precious metals investing was booming if you were considering platinum or palladium. Both were expected to increase in value due to increased industrial demand, which drives prices higher for platinum and palladium.
In addition, the available supply of those metals was decreasing, especially for palladium. That was due to work stoppages in South Africa and Russia. With demand on the rise due to more and more emerging economies with growing industrial needs, there was no end in sight for precious metals investing for platinum and palladium.
Unfortunately, platinum and palladium have been decreasing in value for most of the year. What was the cause for the drop off?
Industrial Demand Slowed for Platinum and Palladium
Unfortunately, despite the slumping supply of palladium, which is expected to continue for at least two years, industrial demand has been slipping too. That has a lot to do with a slowing economy in much of Europe. A major source of demand for platinum and palladium was car manufacturers in Europe, which use palladium to create catalytic converters. However, automakers started to look toward other materials due to the decreasing supply.
They stretched what they had on hand and slowed down their orders in order to keep prices lower. Meanwhile, European economies struggled to continue the recovery and demand for consumer goods, including vehicles, stayed relatively low. That combined to be bad news in precious metals investing, as it kept prices on the decline for platinum and palladium.
Meanwhile, new supply has come in from the recycling of core parts from older vehicles. This has reduced the need for new palladium, and European nations are out in front of other developed economies in terms of recycling old vehicles. In addition, due to some of the rules and regulations in the European Union, a lot of vehicles that might still be running in the United States are being taken off the road overseas. Once again, that cuts down on the need for new palladium if manufacturers are smart enough to recycle what comes off the road.
These unforeseen circumstances have been successful in stemming the tide for precious metals investing. A few years out, the raw material supply is likely to pick back up as mining recovers. Palladium production should stay down through 2014 and into 2015, though.
Gold Hurting Palladium and Platinum
In addition, precious metals investing overall has struggled and a lot of that has to do with the decline for gold. Since gold is viewed as a bellwether of sorts for other precious metals, its decline has led to sell offs in other precious metals. That hurts palladium and platinum, just like the others.
While gold prices aren’t actually linked to platinum and palladium prices for any hard and fast reason, a lot of times the precious metals will influence each other. This is in part because investors who have an affinity for precious metals will often split up their investment across different types of precious metals. When they pull out, they also tend to reduce their exposure to each of the various precious metals.
For now, that means a decline in palladium and platinum prices, but the next big move in gold could work in their favor once again. As such, it’s worth considering buying low to sell high, as it takes nerve to get into an investment when it is moving in the wrong direction, but that is often when the highest return can be found. That’s why precious metals investing can be difficult to time.