UBS: Any Bounce In Platinum/Palladium Ratio Likely To Be Limited

Geneva-Switzerland (Oct 8)  The platinum/palladium ratio could have further upside, but gains are likely to be limited since palladium was probably oversold and platinum still faces uncertainty surrounding the Volkswagen emissions scandal, says UBS. The ratio measures how many ounces of palladium it takes to buy an ounce of platinum.

The platinum/palladium ratio tumbled from 1.85 in late August to a low of 1.30 last week, before edging up to 1.35, the bank notes. The declining ratio means palladium outperformed, and the metal was probably due for a rebound since third-quarter weakness was “exaggerated by external forces and was no longer fully justified by fundamentals,” UBS says. “This suggests that gains over the past month or so are likely to be quite sticky.” A similar argument could be made for platinum, except now there is much uncertainty about auto-related demand due to the VW situation, UBS says.

Platinum is used for auto catalysts diesel-powered vehicles, and there is potential for the VW incident to impact consumer behavior. “The platinum/palladium ratio could have room for further upside as overextended conditions unwind, but gains are likely to be limited,” UBS says.

Source: UBS