While the potential upward moves in the two coincide, palladium is unchallenged as the metal for purifying emissions from gasoline-engines in an auto market recovering from COVID-19.
Gold, meanwhile, is still struggling with the narrative that it is the best hedge against the dollar debasement expected from the trillions of dollars of US debt incurred under the pandemic–and the trillions more the Biden administration will likely spend on infrastructure and other recovery measures.
At the outset, it’s a tale of two metals, with palladium appearing supreme.
Yet, it cannot be denied that if gold were to make a run for the high $1,800 level–and possibly take on $1,900 next–its positive rub on palladium could spur the autocatalyst metal to greater heights.
Citigroup’s base case is for palladium to reach a historic high of $3,000 during the next three months.
The peak could even be $3,500 if disruptions at Norilskiy Nikel’s (MCX:GMKN) Siberian mines–the largest palladium producing facility in the world–turn out to be worse than estimated, the bank said.
On Monday, palladium futures on New York’s COMEX, as well as the spot price of palladium, hit record highs of just above $2,851, rewriting a string of peaks that began at above $2,700 on Apr. 13.
Palladium On One Of Its Strongest Legs Ever
Technically, palladium is on one of its strongest legs ever for a rally, surging almost 25% from lows of under $2,295 during the week ended Feb. 26.
Barring a two-week break between late March and early April, it has virtually been an eight-week upward trajectory for palladium.
On a monthly basis, the autocatalyst metal has straight wins from February through April, with a gain of more than 12% for March alone.
Palladium Futures Daily
All charts courtesy of SK Dixit Charting
Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India, said palladium appeared poised to continue its reach for $3,000, especially if its current momentum above $2,700 did not stutter.
“Even if prices hold above long term-support at the five-month Exponential Moving Average of $2,480, the long-term bullish outlook in palladium remains affirmative/unchallenged.”
“The mid-term outlook is also up and bullish as long as the five-week EMA of $2,710 holds good.”
In terms of a target, Dixit said the 123.6% Fibonacci extension of the move measured from the February 2020 high of $2,789 to the March 2020 low of $1,355 gave an immediate target of $3,127.
“But this is subject to prices holding above mid term support of $2,710–not lower.”
Palladium Futures Weekly
Investing.com Technicals: Palladium A ‘Strong Buy’
Investing.com‘s Daily Technical Outlook calls palladium futures a “Strong Buy”.
Should the market extend its bullish trend, a three-tier Fibonacci resistance is forecast in the near-term, first at $2,641, then $2,828 and later at $2,864.
In the event of a retreat, then a three-stage Fibonacci support is expected to form, first at $2,735, then $2,713 and later at $2,677.
In any case, the pivot point between the two levels is $2,735.
Chris Blasi, president and chairman at Neptune Global, a precious metals-focused investment company in Wilmington, Delaware, is also a believer in $3,000 palladium and Citi’s highwater target of $3,500.
“As the global economy emerges from the effects of the lockdowns, demand for consumer and industrial goods is on the rise,” Blasi was quoted saying earlier this week.
“Increased automobile production directly drives increased demand for palladium, which is drawing on a strategic metal whose annual industrial demand has outstripped mine output for several years.”
Blasi said heightened geopolitical tensions with the world’s largest supplier of palladium, Russia, was another factor “that cannot be ignored or minimized”.
Disruptions at Russian mines run by Nornickel have exacerbated supply concerns, even after the world’s largest producer has said the recovery is proceeding faster than originally planned. UBS Group forecasts a deficit of about 1 million ounces in 2021, which would be 10th straight annual shortfall.
Nornickel said at the end of March it had stopped water flowing into its two major mines in the Siberian Arctic and both were on track to fully resume production in coming months.
Restocking by automakers, expected to take place in the second half of this year and next year, after a chip shortage-induced destocking could boost demand for palladium.
Citigroup’s analysts including said in a recent note:
The “‘catch up’ when chip supply recovers and auto stocks are rebuilt will be significant. This will be bullish for palladium physical balances especially.”
A scenario in which half of prior stocks are rebuilt over six months would represent about a 5% annualized total demand increase for palladium, while a bull case in which all prior stocks are rebuilt would be worth about 10%, the analysts said.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.