Palladium falls to a 2006 low as gold, silver and platinum continue falling

Following the ongoing trend over the last month, precious metals are on the downswing again this week. Since August 11, gold has dropped about US$56 to US$796 per ounce, silver is down over US$2 to US$13 per ounce, platinum lost nearly US$160 to US$1384 and palladium slipped US$54 to US$282 per ounce. Palladium, in particular, has not seen this kind of a low since June 2006 when it took a brief slip to around US$275 per ounce.

“They have responded in the period of several weeks to a strengthening dollar and a weakening oil price,” said Jeffrey Nichols, Managing Director for American Precious Metals Advisors. “Once the decline got underway it took on a life of its own”, he added.

Changing expectations and perceptions about where global economies are headed has played a large role in the price drops, said Nichols. Predictions for Europe in particular, moved from those of positive growth and rising interest rates to the reality of a country either nearing or battling recession. This switch in monetary policy undercut the Euro in regards to the American dollar. As the dollar rose, oil as well as precious metals also took a dive.

The effects of the dive in metal prices isn’t necessarily being felt by the mining sector though. Linda Armstrong, Director, Investor Relations for North American Palladium (TSX: PDL), said the prices will only have an effect on the company if they continue into the future. North American Palladium, currently at US$3.95 per share, has been on a slow decline since the beginning of the summer. However, second quarter results, ending June 30, show the company had a 17 per cent or US$7.7 million revenue increase to US$52.2 million.

Even with the current price drops and uncertainty surrounding when they will make a turn around, some are still bullish about precious metals in the long-term. Given the recently doom and gloom headlines regarding the American economy, an end to the downward slide could be in sight.

“Its only a matter of time before gold starts to respond in a more traditional and expected fashion as being a hedge asset in times of financial instability, stock market weakness and rising inflation,” said Nichol.

He sees palladium and platinum as being more vulnerable precious metals in the short term. This is due to their industrial use in catalytic converters for cars, and the poor outlook for auto sales in the U.S and Europe. However, long-term forecasts are much more positive. “In the newly industrialized world, principally China, India, and other Southeast Asian countries, you are going to see a growth in wealth, growth in income, and in auto demand.” This growth will compensate for a decline in top industrial nations and create an increased demand for these metals, he said.

“They have got the same pollution problems as we have got, and they will be using more platinum and palladium catalysts in their autos.”

There is also positive outlook for palladium in the jewellery industry, said Dawn McCurtain, Marketing Director for North America for Palladium Alliance International. While she noted that is has been a tough year for the industry in general, palladium has maintained a steadier price than other precious metals.

McCurtain said Palladium Alliance International has seen a lot of people who may not have thought that palladium was the way they wanted to go, but have because of the low prices.

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