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Palladium hits record high; 'madness' continues in tight market

Kitco News

(Kitco News) - Palladium prices continued their relentless charge uphill Wednesday, shattering their old record high in a market that remains tight due to strong auto-related demand, analysts said.

Or, as Commerzbank analyst Daniel Briesemann put in, “the madness on the palladium market continues.”

Spot palladium traded as high $2,829.75 an ounce, meaning that at the peak, the metal was roughly $275 above the old record high hit last month. At the fresh all-time high, palladium was already up 46% for the year to date after gaining 54% during 2019.

Just before 9 a.m. EST, spot metal had backed off from the record but was still up $123.30 for the day to $2,757.40 an ounce. Still, spot palladium has been roughly $1,800 more expensive than sister precious metal platinum and roughly $1,200 more expensive than gold.

“Never before has the price gap between palladium and these two precious metals been so wide,” Briesemann said.

A U.S. trader in the physical market said the supply tightness is continuing. Still, he said, a $200 move overnight is almost unprecedented, particularly considering the ongoing worries about the coronavirus that has at times dinged risk sentiment and industrial base metals.

“Right now, it’s the same story as the last couple of weeks – the physical market is undersupplied and tightness is persisting,” he said.

Afshin Nabavi, head of trading with MKS, said the new record was hit in thin activity around the end of Asian trading and before European and New York trading hours. With no fresh news, the move appeared to be short covering, he said. This occurs when traders with short – or bearish – positions buy in order to exit their trades.

“It feels like it was short covering in a very illiquid market,” Nabavi said. “We popped above $2,800. And once that short covering finished, we came off.”

The palladium market has been in an annual supply/demand deficit for several years now. Earlier this month, Johnson Matthey issued a report saying auto-related demand rose to a record 9.7 million ounces last year even though auto sales fell in some countries, with more palladium needed for each auto catalyst in some regions due to stricter emissions regulations. The firm put the 2019 supply deficit at 1.19 million ounces and said it was “likely to deepen in 2020.”

TD securities said, “palladium is stealing the spotlight,” and “metal scarcity will likely continue to push prices higher.”

While car sales may still be down in Europe, loadings of platinum group metals in gasoline-powered vehicles likely will continue to increase, keeping palladium in an annual supply-demand deficit, TDS said. Meanwhile, the near-term risk of thrifting and substitution away from palladium remains low, the Canadian firm added.

“The recent rally may be a signal that metal is being bought to front-run a recovery in Chinese demand,” TDS said. “That being said, we expect only marginal flows from CTAs [Commodity Trading Advisers] as algorithmic trend followers remain well positioned for the precious-metal bull market.”

Commerzbank, meanwhile, reiterated its view that palladium may be rising so fast that a downward correction is coming.

“Admittedly, there are still reports that point to a very tight market, such as the deficit estimated by the world’s largest palladium producer, or the support that looks set to be given to the Chinese automotive sector,” said Commerzbank’s Briesemann. “Nonetheless, these do not justify the renewed upswing in price, in our opinion.”

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