Has the Palladium Bubble Burst?
The palladium market has been a hot subject in the financial media in recent months as the market overtook gold to become the most expensive of the precious metals complex. Things have taken a sour turn in recent action, however, as the metal has declined about 15% from recent highs.
Has the Bubble Burst?
The sharp uptrend in palladium in recent months led some analysts to suggest that the market was becoming quite frothy and that it had the look and feel of a market bubble. Although the metal was seeing some buying on Friday to end the week, the market has seen a series of declines from the highs that have raised some serious concerns. Despite the recent selling pressure, however, some proponents of the metal believe that the bullish case for palladium is still very much intact.
Analysts became increasingly bullish on the metal at the start of the year as tight supplies and robust demand warranted higher prices. With the global economy still on solid footing, it was thought that automobile demand for the metal could potentially keep prices on the offensive. The metal hit a peak in late March of nearly $1600/oz.
Since that high, however, things have taken a nasty turn as the market has reversed course. Although it is too early to tell if the market had in fact entered bubble territory, any further declines in price would seem to suggest that being the case.
Live by the Sword Die by The Sword
Concerns over faltering auto sales have hit the market hard in recent weeks. A primary bullish catalyst has now become the main fuel for recent selling and ongoing concerns over global growth and trade may only pressure prices further. Not only may sales be on the decline, but some analysts have suggested that auto manufacturers may substitute platinum for palladium, adding to the bearish case.
Could a Bear Market Be at Hand?
According to a recent article from MarketWatch, strategists from Commerzbank recently made the case for a bear market in palladium, suggesting that the metal will fall at least 20% from its peak. The article quoted them as stating “We think that the palladium price has not finished correcting and expect it to fall to $1200 per troy ounce by year’s end. The price premium as compared with platinum is therefore likely to shrink.”
The same analysts also pointed out some factors that could potentially keep a floor under palladium prices, stating “Despite the record-high price differential, no significant substitution of palladium by platinum in auto catalysts can be expected.”
Palladium is moving slightly higher on Monday in what could simply be a “breather” after recent volatility and declines. The market was up $16/oz at $1,388 in mid-day action. The market has declined by over $200/oz since late March and its technical posture has seen significant deterioration. That being said, the larger time frame uptrend is still intact. The market may find some willing buyers around the $1,300 area and may need to hold this level to avoid a fresh and significant leg lower.