An ingot of 99.97% pure palladium. Picture: REUTERS/IIYA NAYMUSHIN
An ingot of 99.97% pure palladium. Picture: REUTERS/IIYA NAYMUSHIN

London/New York — The palladium rally continues to defy all expectations.

The silvery-white precious metal, which is used in catalytic converters, has been on a tear in 2020 that shows no signs of slowing down. It has already notched up a 20% gain. On Thursday, prices rallied as much as 5.5% and touched $2,390/oz.

The gains are surprising even the most seasoned market watchers. Palladium 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.

There is little chance that tight supply conditions will ease. SA, a major miner, 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.

‘Bubble’

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

On Thursday, spot prices jumped by more than $120/oz, which is the biggest daily move in dollar terms on record. The metal traded up 5% at $2,378.77 by 12.15pm in London.

Platinum, its less expensive sister, also gained, touching $1,037/oz, the highest in nearly three years. Gold was steady.

Still, palladium’s technicals are stretched and some analysts expect a sharp and brief retreat. The metal’s 14-day relative strength index has held above 80 for seven days — the longest since 2016.

“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.

Several market players have raised their palladium price forecasts for 2020, including HSBC Securities and UBS Group, confirming their bullish outlook for the metal amid a continuing supply deficit.

“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.

Bloomberg