A New Cold War Means A New Record Price For This Precious Metal

[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]

Palladium could be heading for a record. Here’s why: 

Tensions in the Ukraine have turned investors’ attention towards precious metals.  In times of political conflict, especially military, precious metals generally do well. But some people might have been surprised just how the tensions have affected precious metals. 

Palladium has risen to its highest level since 2011. Escalating tensions in Ukraine are the reason, in particular the supply of palladium from Russia, the world’s biggest producer, could be restricted. This is especially true if US politicians and “experts” continue mouthing off about how the US government should go after Russia’s banking and financial system. As if the US government is not in a precarious situation enough… In 1999-2000 palladium ran to $1,090. Could it be heading to its old high? There are lots of reason to believe so…and also to believe we are at the beginning of the next price run in the precious metals, including gold and silver. But for now palladium is the big story. 

Palladium has already increased 13 percent this year. There is crisis in Ukraine, as well as in South Africa, the world’s second largest producer of palladium. 

I have never seen such perfect conditions for the continued rise in the price of palladium. Demand has never been higher and the supply is volatile. 

UKRAINE

The situation in Ukraine has caused a mess geopolitically. In the country itself, capital controls have already been instituted, which we have covered at The Dollar Vigilante continuously. 

7 percent of deposits were withdrawn from Ukrainian banks in the week after the fall of Kiev. The Ukraine Central Bank’s early capital controls:

• Sets limits on foreign currency purchases.
• Limits purchasees to 15,000 Hryvnia per person per day ($1,300).
• Ukraine central bank limit purchases to 150,000 Hryvnia per person per month ($13,000).

The European Union and the US have been quick to aid Ukraine through the International Monetary Fund.  The US has also threatened sanctions, and some US banks have even moved in that direction, like JP Morgan. 

But the Kremlin has taken a similar stance in response to (mainly) US antagonisms. A Kremlin economist, Sergei Glazyev, told RIA Novosti that this would lead to a crash of the US financial system.

“We would find a way not just to reduce our dependency on the United States to zero but to emerge from those sanctions with great benefits for ourselves,” said the Kremlin economic aide.

“We have wonderful economic and trade relations with our Southern and Eastern partners,” he said. “We will find a way not just to eliminate our dependence on the US but also profit from these sanctions.”

Obama has already ceased trade and energy talks with Russia. The State Department said: “At this point, we are not just considering sanctions. Given the actions Russia is taking, it is likely we will put those in place and we are preparing that.”

All this gives Russia reason to begin playing the game of geopolitical chess. Russia’s strength? It’s commodities and resources.

PALLADIUM TO RECORD LEVELS?

I don’t foresee tensions over Russia mellowing out. Of course there is room for a correction in the palladium price, but there is little reason why it should face any troubles overtaking the $1,090 mark should questions over supply remain.  Western companies reliant on palladium are now forced to stockpile. This puts them in a precarious situation as in 1999 Ford went long palladium at the top of the market, and lost a lot of money. You can see how palladium has responded in bitcoin terms:

Palladium is a volatile metal. But we feel that it belongs in a diversified and balanced precious metals portfolio. Especially considering its supply problems. 

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