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Why this precious metal is worth more than gold right now

Images: Getty
Images: Getty

Most commonly used for cars’ exhaust systems, palladium has recently shot above gold in price.

Earlier this month palladium scooted in front of gold for the first time in 16 years, and held this position for three days.

The record-breaking rally came after its price surged more than 50 per cent in four months, as demand grew and supply shrank.

What is palladium?

The precious metal is most commonly used to reduce cars’ exhaust emissions. As it’s a noble metal it’s resistant to corrosion. The silvery metal is a byproduct of mining other metals like gold and was previously considered worthless.

Most of it is produced from Russian nickel mining and South African platinum mining.

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Car manufacturers love it because it converts harmful carbon monoxide into less harmful substances.

And as manufacturers increasingly look for ways to cut their products’ emissions, palladium has become an attractive commodity.

The metal, which is a cousin of platinum, is also used in surgical instruments, dental alloys and electronics like mobile phones.

What’s going to happen next?

Spot pricing of palladium has the precious metal at $AU1,769.05 per troy ounce.

That’s above gold’s $AU1,737.85 per troy ounce.

However this is unlikely to last.

Car sales in the US are softening as drivers keep their cars longer. Concerns about rising interest rates are also muting consumption.

It’s a similar story in China where concerns about the US-Sino trade war are dampening demand.

However mining investment in the metal could increase supply, softening the price further. Earlier this month the Russian Norilsk Nickel mining giant flagged plans to spend $US12 billion on palladium production.

And while palladium reduces emissions, electric vehicles are still considered a cleaner option. As the popularity of electric cars increases, it’s likely the demand for palladium will diminish.

So who’s the winner?

Gold is thought of as a safe-haven asset and its future also isn’t tied to emissions-heavy vehicles.

In fact, 2019 could be the year for gold as market volatility prompts investors to increasingly seek out safer assets.

“Volatility has reemerged across markets generally — commodities, equities, etc. If that volatility persists, it will be key. It is going to push investors to perceived safe havens like gold,” Chris Louney, commodities strategist at RBC Capital Markets, told Yahoo Finance US.

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