Did Palladium Fly Too Close To The Sun?

Now the world’s most valuable precious metal, Palladium prices have continued to soar this year after surpassing gold’s value in March. Yet its bump at the highs suggests a much-needed correction is underway.

Now the world’s most valuable precious metal, Palladium prices have continued to soar this year after surpassing gold’s value in March. Yet its bump at the highs suggests a much-needed correction is underway.

High demand and low supply palladium has been a key driver for spot prices, since about 85% of its supply is used in exhaust systems in cars to help turn toxic pollutants into water vapour and carbon dioxide.  Since 2016 it has nearly tripled in price, although the 40% rally from the October low goes to show how parabolic its trend has been of late.

Gains from trough to peak:

  • April 2003: +1,140.3%
  • January 2016: +298.5%
  • August 2018: +120.7%
  • October 2019: +43.2%

Whilst we cannot claim to have predicted the top, it wasn’t without warning either. We can see that gross short exposure had been creeping up into the price highs and has dragged net-long exposure to a 6-week low, ahead of last week’s top. Gross-long exposure had also peaked around levels that have been associated with corrections since mid-2018, so whilst positioning is not flagging a sentiment extreme, it could point towards a deeper retracement for the metal.

Technically, palladium appears poised for a re-test of its bullish trendline. Since peaking just beneath 1,800, a lower high formed before breaking a prior low and warning of a change in trend. Given it has fallen over 7% in the last two sessions, bearish momentum is clearly picking up and further losses appear more likely. Yet despite these losses, price action remains overextended relative to its 200-day MA.

Moreover, if we’re to see similar levels of volatility today that we have over the past two, it could retest 1,600 later today.

Taking this a step further, the palladium/gold ratio suggests there could be further downside for palladium. Whilst the relationship is not perfect, we can see the ratio crossing above/below its 20-day MA has picked some decent turning points on spot palladium. We’ve outlined a bearish scenario on gold yet palladium still remains relatively high and possibly over stretched from its long-term average. Therefor we’ll continue to monitor to see if the ratio remains beneath its 20-day MA, as it could suggest palladium may consider breaking its long-term bullish trendline.

Related analysis:
Gold’s Worst Week in 3 Years Sees Bears Firmly Back In Control
Gold drops to key support

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account