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Palladium Hits $1,500 But Analysts Ask If Momentum Can Last

Kitco News

(Kitco News) - Palladium prices continue to soar higher, briefly touching $1,500 an ounce early in Wednesday’s trading session, but some analysts are warning that like the Greek fable of Icarus, the metal could be soaring too close to the sun.

Clearly the best performer within the precious metals space, palladium is up nearly 17% on the year, and up 80% since its August lows. Palladium spot prices on last traded at $1,461 an ounce. In comparison, gold prices are up nearly 5% since the start of the year and up 14% in the last six months. Spot gold prices on last traded at $1,344.40 an ounce.

Many analysts have said that palladium prices are soaring because of the market’s growing supply deficit. In a recent report from precious metals firm Johnson Matthey, the auto sector will continue to be a significant source of demand for the precious metal. Palladium is a critical component in gasoline engines.

“The deficit in the palladium market looks set to widen dramatically in 2019, with stricter emissions legislation forecast to stimulate double-digit rises in palladium demand from European and Chinese automakers,” the analysts at Johnson Matthey said in the report.

However, some analysts have said that although the precious metal does have a growing supply deficit, it doesn’t account for the surge in prices.

“There has been no news to explain the price rise of around $100 in the past week. The $1,500 mark clearly has considerable appeal,” said commodity analysts a research note Wednesday. “We see no justification for this high price, which is being attributed to supply shortages. As we see it, speculative financial investors have been jumping on the bandwagon for some time now, boosting the price rise.”

In a report published last week, Ross Strachan, senior commodities economist, said that he doesn’t think palladium’s momentum is sustainable. He reiterated his call for prices to end the year around $1,050 an ounce, representing a decline of more than 28% from current prices.

Strachan noted that slower vehicle demand in an environment of global economic weakness will lead to lower palladium demand.

Commodity analysts at The Hightower report said that although the path of least resistance for palladium prices appears to be higher, the market could soon run out of momentum as the market looks technically overbought.

“We would suggest that further gains will require a very definitive downside extension in the dollar, which seems to be predicated on progress in US/China trade talks this week,” the analysts said.

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