In a year expected to punish the precious metal group, which saw tremendous triple-digit gains dating back to mid-decade on the back of investor fear, one metal forgot the script: palladium. Thanks to a combination of bullish fundamental and technical phenomena, this backwater outpost of the CME has quietly produced year-to-date gains of 18% with plenty of upside to go. Gold and silver meanwhile have returned 4% and -2.6% YTD, respectively.
Primarily added to the catalytic converter in your car to absorb harmful emissions, investors in the know have also been adding palladium to their portfolios at a steady clip. Heck, South Africa launched a new palladium ETF in March. Meanwhile, interest has spiked in $PALL (the most popular palladium ETF) and speculative long positions continue to build in the futures market.
What is driving this impressive bull market? To name a handful of many reasons:
- A multi-year supply deficit.
- The improving economy as car sales surpass 2007 highs, at least stateside.
- Renewed cold war tension between Russia (the world’s largest supplier) and NATO.
- Speaking of Russia, Russian palladium flows to Switzerland (its main palladium exporting partner) rose to an 11-month high in April and still the price rose 4%.
- A five-month long strike in South Africa (the world’s second largest supplier) with seemingly no end in sight.
- The multi-year consolidation breakout about $750/ounce, first noted by All Star Charts.
Palladium is the type of market I love; it has all the pieces a trend follower needs: a strong bullish technical breakout, numerous bullish fundamentals and strong bullish investor sentiment.
Although Palladium has had quite a run, from a technical perspective it has much further to go, perhaps even to its all-time highs above $1,100 per ounce set in 2001. The before-mentioned cold war tensions in Ukraine may ease and the South African platinum/palladium miners may return to work, it may even hit technical resistance around the 2011 high of $865 an ounce, but I’m willing to bet it will bounce back from those temporary bearish events and climb higher.
P.S. I am long the CME futures contract for palladium, offsetting my losses from Arabica coffee I love so much 🙂