Strong demand powers palladium to 17-year pinnacle, gold firms

Key Points
  • Palladium faces headwinds from slowing car sales growth
  • Palladium substitution unlikely to be imminent
Source: World Gold Council

Palladium prices jumped to 17-year highs on Friday as strong demand from autocatalyst makers reinforced the prospect of market shortages, while gold rose for the sixth straight session to reach a 2½-week high on weak U.S. economic data.

Spot palladium turned down 0.06 percent to $1,037.15 per ounce, after rising to $1,042.50, its highest since February 2001, though slowing car sales are expected to challenge further gains. It was on track to close 2017 up more than 50 percent, its strongest annual performance since 2010.

Analysts think about 80 percent of global palladium demand will come from autocatalysts for gasoline powered cars, which many now prefer over diesel fueled vehicles.

"Diesel's share of the European auto market is falling and the flip side of that is gasoline's share is rising," said Julius Baer analyst Carsten Menke.

"Chinese car sales supported palladium, but there will a reality check as tax incentives are removed. In Europe and the United States car sales look to be peaking," Menke said.

GFMS analysts said in a recent research note that next year is set to be the seventh successive year of large deficits in the palladium market. Shortages have in recent years been partly offset by investors selling their holdings in physically backed exchange-traded funds .

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Spot gold was up 0.55 percent at $1,273.61 an ounce, after rising to $1.275.98, the highest since Dec. 5. Bullion was on track to see its strongest weekly performance since mid-October.

U.S. gold futures for February delivery settled up 0.7 percent at $1,278.80.

The futures market will be closed for the Christmas holiday on Monday. U.S. growth prospects dimmed on Friday as data showed spending outpaced income in November and the Federal Reserve's preferred inflation measure -- the personal consumption expenditures price index that excludes food and energy -- rose.

"At the end of the day, if you don't have the incomes you're really not going to continue to aggressively go spending," said Bart Melek, head of commodity strategy at TD Securities in Toronto. "In that environment, it's very unlikely ... that the Fed is going to get overly aggressive anytime soon when the inflation metric is well below target."

Platinum, used in autocatalysts for diesel cars, fell 0.4 percent to $911.50 an ounce. The ratio of platinum to palladium prices has gone below 1 from above 5, leading to talk of platinum substituting palladium.

Silver added 1.5 percent to $16.35 an ounce.