News & Analysis

Is it a song? Is it ancient Latin? No! It's commonality between oil prices and metals!

Andrew Saks, Thursday, 22 April 2021

Magnesium, Vanadium, Chromium Palladium..

Nope. It’s not a 1970s song by amusing British a cappella quartet The King’s Singers, and its not a list of Roman amphitheaters.

These are metals and are classified as chemical elements. I once asked a scientist to define the differences between them, but I didn’t understand what the el-e-ment.

Once the tumbleweed stops blowing across the floor, we can move on to what these are and why they are significant.

Let’s look today at Palladium. It is a white metal, and has tremendous value in engineering and heavy industry.

Palladium is at a record high this week, having reached the lofty heights of $2897 yesterday evening, and now sitting at $2897 at close of business last night.

The white metal rallied as much as 5%, taking out the previous lifetime highs of $2,882 set earlier this year, as investors fretted that the supply deficit issue would likely worsen amid a rebound in demand from major car manufacturers.

Once again, oil demand is down as India's economy goes toward lockdown. India is the world's third largest importer of oil, hence this is bound to have an effect. There is an OPEC meeting on April 28 at which it was expected that an announcement on higher production would come about, however Russia, one of the largest producers of oil in the world, and a nation whose national economy relies on crude oil, is likely to keep production unchanged.

Many analysts have given bearish signals this morning, even though global oil prices have been going up since April 5.

Its nations which are switching away from fossil fuels that are no longer the influencers of this raw commodity's price, but large nations in the APAC region with huge populations, hence the fall in value.

In the aforementioned Russia, the black stuff is king, because its extraction and refinement is one of the most important areas of the country’s raw materials-based economy, however in the West, the emphasis is on renewable energy, which has contributed to the lessening of demand for oil, and on electric cars, all of which have to be made light and safe, hence the use of quality metals such as Palladium, whereas in the East, internal combustion is being clung to rigidly.

There is, therefore, a relationship between oil demand, and Palladium demand.

As far as standard precious metals are concerned, Gold is up at $1799 with a lot of bullish opinions circulating. Perhaps those are buying gold who fear a global economic implosion given that half of Europe is back in lockdown. You can transport gold, but you can't transport a locked down local economy!

Precious metals are therefore as intrinsically linked to volatility caused by the demand within global industry that has differing features according to demand and regional focus.

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