PALLADIUM TODAY: Prices break higher

Short Term:
Medium Term:
Long Term:
Resistances:
R1 797 Jan 2017 high
R2 833 HRL Mar 2015 peak
R3 911.50 HRL Sept 2014 high
Support:
S1 771 20 DMA
S2 741 Feb 3 low
Stochastics:Bullish
Legend:

BB – Bollinger band
DMA – daily moving average
Fibo – Fibonacci retracement line
H&S – head-and-shoulder(s) formation
(H)S/RL – (horizontal) support/resistance line
MACD – moving average convergence/divergence
UTL – uptrend line

Analysis

  • Prices broke up through $797 per oz resistance on Thursday March 23, taking prices to $809 per oz, the highest they have been since May 2015.
  • The recent low was above the January low at $711 per oz and well above the UTL, which is now at $701 per oz, which suggested good underlying support.
  • Judging by the previous peaks ahead of $800 per oz, it looks as though there was scale-up producer selling above the market. Now prices have moved up through $800, we wait to see where the next selling levels are.
  • The long-term chart (see inset) shows a band of supply running up to $833 per oz, which is likely to be the next target. 

Macro factors

ETF investors have been showing renewed interest in palladium – holdings have been climbing since mid-March. We wait to see if the move up through resistance attracts more fund buying. 

The funds trading on Nymex have been quiet in recent months. There has been a slight pick-up in shorting from a low base while the longs have been increasing their exposure too. The gross long position at 20,937 contracts is, however, more or less in mid-range compared with where it was over the past few years at 12,824-26,460 contracts. Given where the gross long and short positions are, either camp is well placed to increase its exposure. Again we wait to see if the break higher has been driven by fund buying.

With palladium’s use tied to the automotive market, we are wary about the metal’s timing to push higher; if anything, the Chinese automotive sector looks set to weaken after a very strong year last year while US auto sales have also come off the boil slightly. 

Conclusion

Palladium’s bull market has followed a choppy path for most of 2016, involving some large pullbacks along the way; this pattern seems to have rolled into 2017 too. Until recently, better economic data pointed to a stronger demand outlook but although we expect general economic data to continue to improve we also expect some slowdown in the auto industry, especially in China. 

We have said we are not overly bullish about palladium prices at these levels unless investor interest picks-up considerably. If ETF and funds do not start to increase exposure then we would be cautious about this break-out.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
Kathleen Retourne

About Kathleen Retourne

Kathleen has been reporting on commodity markets since 2006. She joined FastMarkets in 2011 and has immersed herself into the metal industry, specialising in LME coverage. Follow her on twitter @kathretourne