Will Palladium Shine For Precious Metals Bulls??
Today’s Spotlight Market
Large speculators are slowly accumulating a net-long position in Palladium futures, according to the Commitment of Traders report. Non-commercial traders, mainly large speculators and commodity funds, added 70 new net-long positions during the week ending April 1st. This brings the overall net-long position to 23,309 contracts, which is a large position for this relatively thinly traded market, but the current size of the position still leaves room for the further accumulation of long positions before the position becomes burdensome. Commercial hedgers are on the other side of the trade, with a net-short position of 25,627 contracts.
Fundamentals
Although Gold has lost some of its luster for precious metal bulls, there appears to be some renewed interest in Gold?s lesser known cousin Palladium.? Front month June Palladium has rallied nearly $50 per ounce during the past 4 weeks, as both supply and demand fundamentals have turned bullish. On the supply side, a strike by South African miners has curtailed palladium production by over 100,000 ounces so far this year. South Africa is the world?s second largest Palladium producer, accounting for over a third of global production.?
In addition to supply issues from South Africa, precious metals traders are considering recent political events in Russia, which is the world?s largest Palladium producer. Here traders fear that potential sanctions against Russia for their involvement in Ukraine and eventual takeover of Crimea could curtail Russian Palladium sales in the coming months. Analysts think that Russian Government Palladium stockpiles are already at very low levels, which would have limited Palladium sales into the market even before any potential sanctions are announced.
On the demand side of the equation, analysts point to the continued increase in auto demand in China, and the growing need to help contain the nation?s pollution issues should help to increase the demand for Palladium, which is an important component in catalytic convertors. In fact, over 70% of the demand for Palladium is for use in pollution controls of gasoline powered motor vehicles. Unlike Gold, which made its all-time highs less than 3 years ago, Palladium prices peaked back in 2001, when export disruptions out of Russia, due to mostly political reasons, sent prices above $1,000 per ounce. D?j? vu anyone?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for Palladium futures, we notice what was once a rather quiet market suddenly became alive back in 1998, which ushered in a rather volatile trading pattern for the past 16 years. The run-up to the peak in prices back in 2001 did not last long, as the market quickly retreated back to ?historic? price levels in about 2 year?s time. Prices appear poised to break out from the recent consolidation phase, although there is still some upside resistance at the 2011 highs.? Near-term resistance is seen at the recent high of 802.45, with support found at the March 20th ?spike? low of 746.30.
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