If the evidence coming out of the U.S economy is any indicator, the global economy may be on the verge of another large expansion period. For precious metals investors, the news is mixed because while equities and debt are doing great, a high dollar suppresses prices of gold - the primary precious metal. However, there are two precious metals that benefit from a growing economy and strong dollar: platinum and palladium - these precious metals are set to outperform both gold and the stock market if the economy continues on its expansionary course.
The Platinum and Palladium Trade
The platinum group of metals (platinum and palladium) are several times rarer than gold, and the entire sum of all metal mined could fit into a large storeroom. Unlike gold, which derives most of its price from speculative forces like the currency markets, interest rates, and inflation, the platinum group of metals are used primarily in industry. Specifically, they are used in the auto industry to fabricate auto-catalysts and fuel cells.
The price of the platinum group of metals has struggled since the great recession in 2007, when a slowing economy led to lack luster automobile sales around the globe. However, the U.S auto market quickly recovered, giving these metals back some fraction of their demand but the metals have been under significant pressure from a weak European auto industry. With the incredibly strong dollar, this may soon change because a strong dollar will boost the European cars exports to the U.S market.
Performance of the Platinum Group
Palladium (PALL) has been the best performing precious metal of 2016. With the dollar at historic highs, the European auto industry is set to surge in 2017 and onwards. With it, the platinum and palladium used to create auto catalysts may also rally.
The market faces challenges from low Chinese jewelry demand, and auto-catalyst recycling. The boost to demand should defray these challenges, and the metal is likely to outperform gold and stocks going forward.
