Palladium Prices Steady as Yellen Says US Economy Has Improved, Future Rate Hikes “Gradual”

Palladium futures were slightly higher Thursday, on track to advance for a second session as traders reacted to Janet Yellen’s testimony to Congress.

On Wednesday, palladium and the precious metals got a boost after Janet Yellen communicated that the pace of future rate hikes would be “gradual”. While rate hikes should be dollar supportive, and this, in turn, should pressure palladium, rate hikes are already expected and therefore already priced into palladium. What investors were concerned about heading into Yellen’s two-day speech was if she would indicate more aggressive rate hikes. Her “gradual” comment eased these concerns.

Also, Yellen was fairly upbeat about the health of the US economy – and with palladium an industrial metal this is positive for demand expectations.

Of the precious metals, palladium has been the star performer over the past months. The metal has surged to multi-year highs whereas the other precious metals have run into resistance. Palladium is quickly approaching platinum in terms of value.

The precious metals complex is taking a hit from higher interest rates, which dampen the appeal of non-yield bearing assets while a seasonal lull is also contributing to the complex’s losses. But, even though the precious complex is facing pressure, palladium prices are trading at multi-year highs.

Palladium prices are benefiting from improved demand expectations, while supply shortfalls are also contributing to the metal’s upside. Output from top producer Russia will fall 3% this year whereas world demand for 2017 is expected to exceed supply by 24.4 tons, according to Johnson Mathey.

However, not everyone agrees with palladium’s strength. In June, Commerzbank analysts said they saw “no justification” for the strong palladium price.

Leia Toovey has a B.Sc. in geology from Simon Fraser University, and her degree had a focus on resource economics. Out of school, she started working in the booming mining industry of Vancouver, Canada, covering junior mining stocks and commodities including potash, copper, nickel, oil and gold. Then she moved to New York and worked as a commodities analyst covering a breadth of commodities, from the Baltic Dry Index through the softs. As a geologist she has a greater understanding of the exploration and extraction side of commodities, and how changes in technology and the depletion of resources impact pricing. At Economic Calendar she covers a variety of commodities, providing daily technical and fundamental analysis and assessing major market developments.