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Palladium set to power well beyond $1,000 on death of diesel

(Christopher Furlong/Getty Images)

The cliché of the perfect storm currently fits the fate of palladium perfectly, with its predecessor “an ill wind doing nobody any good” also in play.

Ironically, the precious metal has been a major beneficiary of both storms in the U.S. as well as the emissions scandal brought to the world via VW.

In fact, the recent story of the rise and rise of this market began in a relatively conventional way, with a boom in car sales from 2015. This was a benefit to palladium off the back of the death of diesel where platinum containing catalytic converters rule, to the now more fashionable petrol engines where palladium features.

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Of course, one wonders how far the draconian government measures against exhaust pollution will go? Clearly, any scenario is possible other than sponsoring an accelerated move towards electric vehicles.

(Yahoo Finance UK)

Given the way the motor car is a tax magnet on the fuel front, one would imagine that despite all the environmental promises the end of the gas guzzling era is still some way off. In the meantime palladium seems to be the prince of precious metals. But it may not only be about cars.

Gold underperforms

One of the big surprises of the post global financial crisis period has been the relative underperformance of gold – traditionally regarded as the leading precious metal. We have had all the positives of this commodity drummed into us since the fall of Lehman Brothers in 2008.

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The store of value play, the China/India jewellery argument, the inflation hedge, and the general feel good factor associated with gold have not really come to pass. One can have a dig at the gold bugs by reminding them how over the past decade it has not been this metal which has been the store of value, it  has been real estate – by a mile.

(Nasdaq)

Even the prospect of nuclear missiles being fired willy-nilly around the Far East failed to really send this market alight.

Then, of course, there is the old chestnut of supply and demand. This argument is the one wheeled out when all else fails. The irony as far as palladium’s latest surge to a 15 year high and north of $1,000 an ounce, has been off the back of supply and demand issues. As one can appreciate, such considerations in the industrial space are always going to be more easy to understand as compared to the minutia of the Indian wedding season.

Palladium to overtake gold?

What will be interesting to see now is whether palladium will actually now go on to beat gold in terms of pricing over the rest of the year? While this may sound somewhat far fetched, there seem to be several reasons gold may underperform over the near term.

For instance, a more hawkish Federal Reserve Chair, and the end of QE suggest imply that if the yellow metal could not beat its $1,900 plus all-time peak from 2011 until now, it may not do so indefinitely.

Indeed, at this stage the only big plus – a rather dangerous one, is that Kim Jong-un manages to create a nuclear confrontation. But of course, all precious metals including palladium would rise in such a scenario  – albeit they may be radioactive.

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The charting perspective

From a technical perspective we have a decent indication in terms of the near term price action. This is because palladium has been rising within a trend channel which can be drawn on the daily chart  from as long ago as the beginning of last year. The resistance line projection of the formation is currently pointing as high as $1,120, something which implies there is decent upside to chase.

This is especially so given the way that even after all the recent gains the metal is not overbought on its Relative Strength Index standing in the low 60s. Typically only above 70 suggests that a stock or market is overcooked. Therefore it may be said that even though the usual rule of the financial markets is that by the time you read about something in the papers the story is over, palladium may go on a little longer at the top of the precious metals hit parade.