Is Palladium the Worst Performing Precious Metal of the Year? UBS Analysts Say Yes
UBS analysts have identified palladium as the worst-performing precious metal of the year, with a 12% decline so far. The bank attributes this underperformance to heightened volatility and a challenging demand outlook. Speculation about potential G7 sanctions on Russian palladium exports caused a temporary price spike, but with no sanctions implemented and a stronger U.S. dollar, prices have since fallen below $1,000 per ounce.
Russia accounts for over 40% of global palladium mine supply, and while a ban on Russian exports could lead to shortages in Western markets, analysts are skeptical that the G7 will enact such measures. Russian palladium has already been redirected to Eastern markets, lessening the immediate impact of potential sanctions.
UBS holds a neutral 12-month outlook for palladium, warning that only high-risk investors should consider trading the metal due to its low trading volumes and limited market size. The bank believes the long-term outlook for palladium is negative, as the metal is projected to be oversupplied in the future.
The auto industry’s shift away from internal combustion engines towards battery electric vehicles presents significant headwinds for palladium, as autocatalysts rely on the metal. This structural decline in demand is expected to lead to oversupply in the coming years. While some temporary supportive factors exist, such as stalled electrification rates and consumer preference for hybrid vehicles, UBS views palladium’s outlook as fundamentally weaker compared to other precious metals.
In conclusion, investors should be cautious when considering palladium as an investment, as the long-term outlook remains negative. The metal’s future is uncertain, with risks skewed to the downside. It’s important to stay informed and consider all factors before making any investment decisions in the precious metals market.