Gold-Palladium Ratio at 10-Year Low on Supply: Chart of the Day

May 22, 2014 12:54 am ET

May 22 (Bloomberg) -- Gold is trading at the lowest level relative to palladium since 2004 as prospects for a record shortage lure investors to the metal used in pollution-control devices for cars amid concern that supply will be disrupted.

The CHART OF THE DAY shows an ounce of gold bought as little as 1.5457 ounces of palladium yesterday, the least since 2004, according to Bloomberg generic pricing. The lower panel tracks palladium assets in exchange-traded products, which climbed 28 percent this year to a record 86.3 metric tons, while gold holdings fell 2.4 percent. Russia and South Africa are the world’s biggest producers of palladium.

A 17-week strike over pay at the South African mines of Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc, the largest producers, has squeezed supplies while western nations threaten Russia with sanctions for its actions in Ukraine. Johnson Matthey Plc predicts palladium’s shortage will expand to 1.61 million ounces in 2014 from 371,000 ounces last year. That would be the biggest shortfall since at least 1980, based on data on the company’s website.

“Beside the currently most important triggers for the price of palladium, namely the tense strike situation in South Africa as well as possible sanctions towards Russia in the Crimea crisis, global demand from the automobile industry should not be neglected,” Sonia Hellwig, senior manager for sales and marketing at Heraeus Metals Germany GmbH & Co. in Hanau, Germany, said by e-mail. “Furthermore the palladium ETFs continuously create positive impulses for the palladium price.”

Palladium for immediate delivery climbed as high as $834.29 an ounce yesterday, the highest level since 2011, and was at $829 today, an advance of 16 percent this year. Gold traded at $1,292.04 an ounce, rising 7.5 percent this year after a 28 percent slump in 2013.

IHS Automotive predicts that global auto sales will climb to a record 85 million this year. Usage by automakers increased 3.6 percent to a record 6.91 million ounces in 2013, according to Johnson Matthey, which makes about one in three of the world’s catalytic converters.