Palladium gains outpacing fundamentals leading to fear of price bubble, say analysts

Macro image of a one ounce Palladium bar

THE continued rise in the price of palladium – up 20% this year even after a strong showing in 2019 – was rapidly turning into a bubble, said Bloomberg News citing metals analysts.

“The dynamics are so strong. Nobody can tell me that this is just fundamentals,” Commerzbank analyst Carsten Fritsch told Bloomberg News. “This is already becoming a bubble”.

Spot prices for palladium jumped by more than $120 per ounce, which is the biggest daily move in dollar terms on record. The metal traded up 5% at $2,378.77 by midday in London. It has added more than 70% in the past year fuelled by a combination of tight supply conditions and strong demand as stricter emissions targets force carmakers to use more of the metal in autocatalysts, said Bloomberg News.

There is little chance that tight supply conditions will ease.

South Africa, a major miner of the metal, reported a sharp drop in platinum group metal (PGM) production in November. Adding to the bullish mood was the US-China trade truce, and record car sales in Europe in December even though they are unlikely to be repeated.

“It’s overbought but ignoring it,” said Rhona O’Connell, head of market analysis for Europe, the Middle East, Africa and Asia at INTL FCStone. There should be a sharp pullback at some point, she said.

“The risk on the downside lies with some speculative profit taking, but any correction should be met with aggressive buying and remain short-lived,” precious metals refiner and trader MKS PAMP Group said in a note.



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