Palladium Reaches Highest Since 2011 as Gold Sags to 15-Week Low

May 28, 2014 2:42 pm ET

May 28 (Bloomberg) -- Palladium rose to the highest since August 2011 after South African mining companies and a labor union failed to reach an accord to end a pay strike. Gold fell to a 15-week low as Russia said it will respect the vote for Ukraine’s new leader.

Palladium has risen 13 percent since Jan. 23, when the workers walked out. The country’s new mining minister will talk with the companies after meeting leadership of the Association of Mineworkers and Construction Union yesterday, his department said in a statement on its website. South Africa is the world’s second-biggest producer.

The producers say they have lost 20 billion rand ($1.9 billion) in revenue. Platinum- and palladium-backed fund holdings are at a record, as shortages build for a third straight year and amid tension between Ukraine and Russia, the biggest palladium supplier. Demand will top supplies by 1.6 million ounces in 2014, the most ever, according to Johnson Matthey Plc.

“People are betting on higher prices because of the South Africa situation,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “The fundamentals are very supportive.”

Palladium futures for September delivery gained 1.1 percent to settle at $840.75 an ounce at 1:10 p.m. on the New York Mercantile Exchange. The price touched $845, the highest for a most-active contract since Aug. 1, 2011. Trading was more than quadruple the average for the past 100 days for this time, data compiled by Bloomberg showed.

Supportive Outlook

The “fundamental outlook is supportive and I think that primarily relates to South Africa,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said today by e-mail. “Strong momentum is attracting speculative funds into the metal, so we continue to see new buying on each new high.”

Palladium is used for pollution-control devices in vehicles in the U.S. and China. Industrial applications account for 94 percent of the metal’s use, Johnson Matthey data show.

European Union leaders put off further sanctions on Russia after President Vladimir Putin showed a willingness to work with Ukraine’s new leader.

Platinum futures for July delivery rose less than 0.1 percent to $1,462.70 an ounce in New York. South Africa is the top producer of the metal.

Holdings in exchanged-traded funds backed by platinum rose 11 percent this year, while those in palladium surged 29 percent.

Gold futures for August delivery fell 0.5 percent to $1,259.70 an ounce on the Comex in New York, after touching $1,256.10 earlier, the lowest for a most-active contract since Feb. 7. Prices have fallen 9.5 percent since mid-March after the U.S. economy showed signs of growth and equities surged.

Last year, the metal slumped 28 percent on concern that the Federal Reserve will slow the pace of monetary stimulus. The central bank pared its monthly asset buying to $45 billion in April, its fourth straight $10 billion cut. Gold climbed 70 percent from December 2008 to June 2011 as the central bank bought debt and held borrowing costs near zero percent.

Silver futures for July delivery fell less than 0.1 percent to $19.059 an ounce on the Comex.

--With assistance from Glenys Sim in Singapore.