THE ‘REAL SWEET SPOT’ FOR PALLADIUM STILL REMAINS

PALLADIUM threatened to extend its record-breaking rally, even as investors mulled whether the metal has rallied too high, too fast. After prices initially fell almost 3 percent yesterday, they then flipped to gains despite technicals continuing to signal that a pull-back may be due. The metal has set record after record this year – reaching a fresh all-time high of $2 539.14 (R36 685.50) on Friday as tight supply conditions show little signs of easing. The metal’s surge is rooted in positive fundamentals, with production trailing demand as stricter emissions standards boost consumption by carmakers, and as uncertain power systems in South Africa worsen supply contraints. Another factor is that producers don’t have the capacity to boost output easily in response to price increases, because palladium is largely mined as a by-product. The cost to borrow palladium has jumped to the highest in more than a year. Palladium is in a “real sweet spot” of recovering industrial production globally, improving demand due to strong car sales, and constrained mine supply, said Wayne Gordon, executive director for commodities and foreign exchange at UBS Global Wealth Management. The level of substitution has been less evident than expectations given its price relative to platinum, he said. “Setbacks after these sort of rallies, given the very thin nature of volumes in the market, isn’t that surprising,” Gordon said. “If industrial production surprises to the upside, and so does cars’ demand, well, then palladium can get a heck of a lot tighter.” The speed and scope of the gains are surprising even the most seasoned market watchers. | Bloomberg