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Commodities Corner: Palladium has outperformed gold and silver this year, but may still have to room to climb

Palladium has outperformed gold and silver, as well as sister metal platinum, so far this year, and the market is showing some signs of further gains to come.

Palladium has outperformed other precious metals by a “healthy margin” in 2022, with the metal’s fortunes changing dramatically as events in Ukraine escalated, says Steven Dunn, head of exchange-traded funds at investment management firm abrdn.

Financial sanctions on Russia could have “worsened an already tight supply challenge, which is why you saw such a violent rally in the price,” says Dunn, adding that 45% of global palladium reserves are in Russia. Palladium futures touched record intraday highs in March above $3,400 an ounce.

But it’s hard to tell whether the price pullback since then presents a buying opportunity. “Ongoing supply issues would suggest support, but that could be overridden by central banks’ desire to tame inflation, which may lead to a global slowdown,” Dunn says.

On Oct. 18, palladium futures
PA00,
+3.26%

PAZ22,
+3.26%

settled at $2,013.90 an ounce on Comex, up more than 5% year to date. Platinum
PLF23,
+3.73%

PL00,
+3.73%

has seen prices decline of more than 6% this year, while gold
GC00,
+0.11%

GCZ22,
+0.11%

has fallen by 9.5%, and silver
SI00,
+1.75%

SIZ22,
+1.75%

has lost over 20%.

Palladium is a thinly traded market and, as such, is highly volatile, says Christopher Blasi, president of precious-metals dealer Neptune-GBX. The Russia-Ukraine war added a “highly unpredictable variable to the mix,” he says.

Sanctions on Russia limited supply, and Russia’s retaliation in response further boosted palladium prices. Sanctions also forced Russia-sourced palladium to go through third parties, further adding to the metal’s cost.

The metal’s price is now closer to the bottom of the trading range established over the past several years, Blasi says. “Palladium is at a good entry point right now,” and has shown “strong support right around $2,000.”

Based on technical analysis, the metal could have room to climb further, as prices may be headed toward a so-called “golden cross,” which is what happens when a short-term moving price average crosses above a longer-term moving average. It is an early indicator of a change in sentiment toward the asset, says Bob Minter, director of ETF investment strategy at abrdn.

Palladium futures aren’t quite there, and may not get there soon, but based on the trajectory of the 50-day and 200-day moving averages, prices appear to be headed toward a golden cross, according to an analysis by Dow Jones Market Data.

Most-active palladium futures prices compared with the 50-day and 200-day moving averages.

FactSet

The last time palladium had a golden- cross event was on March 11, 2022—and prices then fell 13.6%, on March 14. On Oct. 18, the 50-day moving average was at $2,138.13 an ounce, while the 200-day moving average stood at $2,163.73, FactSet data show. “Golden crosses can send false signals on really violent price action,” says Minter.

Currently, the market is “evaluating the large negative effects of central bank policy and the potential for those policies to be reversed or moderated, which would help drive the affordability of autos, a key demand driver for palladium,” says Minter.

Auto affordability has been strained, given interest rates and prices, he says. However, in the medium term, hybrids are a “sweet spot” for auto makers as buyers “dip their feet into the cars that run on gasoline but have a battery assist to improve mileage.”

Some localities have banned internal-combustion-engine, or ICE, vehicles in five to 10 years, but “hybrids do not count as ICE in these bans,” Minter says. So palladium demand “may surprise,” as analysts see ICE and electric vehicles as “black and white while ignoring the ‘gray’ area of hybrids.”

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