Palladium spike through $1,700/oz premised on fundamental supply tightness, say analysts

Macro image of a one ounce Palladium bar

THE palladium price spike overnight – moving briefly through $1,700 per ounce – was motivated by fundamental tightness in supply, said Saxo Bank commodity strategist, Ole Hansen, who said there was no current reason to suppose the price would soften.

“Underlying fundamentals have been supportive all year for palladium and there is a shortfall in supply … It will extend until the music stops, and right now there’s nothing that really is calling for that music to stop,” said Hansen in a report by Reuters.

“If we see some breakdown in some of the other metals, such as gold or platinum, we may start to see some profit taking that could spill into palladium.”

The price of gold has, in fact, weakened as US, China trade war tensions eased. This was after the White House issued a statement that it did not intent delisting Chinese equities as had been speculated.

“Gold has run out of steam, and is looking for additional news to drive it higher … The dollar has shown some grip and the strong rally in bonds at the start of this quarter has faded, and markets continue to be well behaved,” said Hansen.

Palladium, however, was being forced upwards by demand for the metal in the manufacturer of autocatalysts. Concerns that supply of the metal used in car exhaust systems could run out has helped to lift prices by more than 33% this year alone, despite a weakening auto sector, said Reuters.

“We think palladium’s recovery from August lows is due to a resumption of fundamental tightness as well as some speculative interest. Despite palladium’s robust fundamentals, bouts of risk-off would weigh on the market,” UBS analysts said in a note.

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