Precious Metals Weekly – Another shoe to drop

by: Georgette Boele

  • Palladium prices also break lower…
  • …as investors have changed their behaviour towards palladium
  • Silver and gold prices will also likely drop in the coming weeks


 

Another shoe to drop: palladium prices also break lower

Platinum prices were the first precious metal prices that have fallen out of the trading range. Recently, palladium prices have followed by also breaking lower to a level not seen since December 2013. In general, the technical price picture has sharply deteriorated. If prices close below USD 700 per ounce (previous low), this could easily result in prices dropping towards USD 633 per ounce. Palladium prices are now the second shoe to drop. We expect another pair of shoes (silver and gold) to drop in the coming weeks when Fed rate hikes come into focus and the US dollar rallies.

 

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Why have prices moved lower?

In general, a deterioration in investor sentiment, more specifically worries about the state of the Chinese economy sentiment, has had a pronounced negative impact on palladium prices. In addition, there have been reports about more substantial supply from recycling resulting in an anticipation of a lower supply deficit this year. Last but not least, investors finally seem to have lost patience with the most favourite precious metal in town.

Are investors starting to behave differently?

Yes, we think so. Up to recently, investors were very reluctant in building short positions on the futures markets, because they held a positive view about overall palladium outlook. We have seen this pattern developing in 2013 in gold, in silver since 2013, in platinum in 2015 and now also in palladium. In short, this means that investors also start to take downward price movements into account. This is a significant change in attitude in our view. The fact that the outlook of a supply deficit has not rendered higher palladium prices early this year was a warning sign just like the platinum supply disruption in South Africa last year did not sent platinum prices higher. We believe that investors have started to liquidate palladium positions and that there are still substantial positions in the market to be liquidated. Our end of June call of USD 650 per ounce may still be far away, but it could come quicker than the market currently envisages.

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