Has the Palladium Price Peaked for Now?

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Precious Metals

Just when prices and demand are looking up for palladium, analysts start talking about selling the metal. But then that’s the job of market researchers, to be looking down the road rather than out the side windows. The motoring metaphor is apt in this case; over 65% of palladium is used in the automotive industry according to Still Water Palladium. But as Bloomberg has pointed out, much of the rise in the palladium price this year has been due to a gradually recovering automotive sector, speculating on and now enjoying the benefits of the cash for clunkers program. But with funds fully committed and an end to the increased manufacturing stimulated by the program likely by the 4th quarter, demand for the metal is likely to fall. Prices have already come off a couple of percent last week and in a recent market report, Standard Bank has put forward three reasons why they see the palladium price is likely to fall relative to platinum this quarter.

First, Switzerland which has been exporting for five straight months has seen dwindling sales as time has gone by. In fact the only country to be a net buyer last month was China probably reflecting China’s continued robust automotive market.

Second, CFTC data shows large net long speculative positions are building in palladium futures without a rise in open interest, so little or no futures contracts are being taken out.

Third, palladium ETF holdings have grown steadily since the start of the year. Last week, total ETF palladium holdings stood just short of 926,000 oz at the start of the year, holdings stood at 663,336 oz. In contrast, platinum ETF holdings have tread water around the 500,000 oz mark since May. An end to the cash for clunkers program could see investor demand for palladium slow relative to that of platinum and as buying slows so will the price.

With no likely supply disruptions on the horizon and demand remaining muted due to subdued automotive, jewelry and electronics demand, it is difficult to see where support for the rising price is going to come from.

–Stuart Burns

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