In 2017, palladium was the best-performing metal, having gained by more than 40%. Its rally started in January 2016 when its price bottomed at $440/OZ.
Palladium reached an all-time price of $1100 in 2001 before starting a decline that saw it trade at about $187/OZ in 2003.
To starters, palladium is a metal mostly found deep inside the earth’s crust in countries like South Africa and Russia. Unlike gold, which is used mostly for investments and has no industrial use, palladium is used mostly in the auto industry in a process called catalytic conversion. It helps reduce pollution in the internal combustion vehicles.
A big problem is emerging for palladium in that the world is moving from gasoline cars to electric vehicles (EV). Since EVs don’t emit, the use of palladium may not be necessary.
In South Africa, palladium and platinum miners have been cutting costs, shutting down mines, and even exiting the business all together.
Some have started shifting from the industrial supplies to ornamental supplies. In India, companies have started marketing platinum and palladium as better alternatives to gold ornaments and jewellery. However, many believe that an end to gasoline vehicles would mean a near end for these metals. In other words, rings and bracelets will not replace vehicles.
As I have written before, platinum and palladium have similar uses and in most cases, manufacturers tend to use the cheaper option. Platinum is now trading at less than $1000 and in the past few months, its price has surged. The chart below shows the spread between the two metals.
The rise of palladium – and platinum – is also associated with increasing demand for the metals. A good way to show this is to use the weekly COT report. As shown below, commercial and non-commercial demand for the metal is rising.
Palladium and platinum investors know that a mean reversion may be imminent as manufacturers move to the cheaper platinum.
Doing technical analysis for palladium, in the current chart formation is a technician’s worst nightmare. In the short term however, markets may expect a pullback, potentially at the 23.6% retracement level before initiating short term buy positions.