Palladium to lead the way?

After pulling back to start the year, gold is hitting all-time highs again and could move higher on concerns related to North Africa’s unrest, Europe’s debt woes and Japan’s earthquake.

That said, it may be palladium, not gold, that leads the way among precious metals thanks to growing demand for automobile in the developing world, says Patricia Mohr, an economist at Scotia Capital Markets.

“Palladium (a Platinum Group Precious Metal) may well outperform gold in the next two-to-three years, as occurred in 2010,” she said in a note to clients.

With strong auto sales in China and other emerging markets, palladium demand should increase, Ms. Mohr said, as it is a main component in auto catalytic converters for small, gasoline-fueled cars and light trucks.

“The ‘emerging markets’ of China and India will be auto growth markets, given vehicle penetration of only 45 per 1,000 people in China and a mere 14 in India compared with 782 in the United States,” she said.

China’s car sales are expected to advance by 10- 15% in 2011, after jumping 33% in 2010. At the same time, emissions controls will also be tightened further in China in coming years, propelling demand for palladium.

Ms. Mohr added that a Russian government stockpile of palladium will continue to close the gap between higher world consumption and lower mine supply in 2011, but that this stockpile is dwindling.