It was supposed to be the year of specialty metals.
However, palladium is experiencing one of its worst bear markets in history, owing to a slew of uncertainty about inflation and whether central banks responding with ever-increasing rate hikes would tip the global economy into recession.
Palladium, a metal principally prized for its role in decreasing hazardous gasses from gasoline-powered car emissions, reached a record high of $3440.76 per ounce in New York futures trade in March 2022.
That rally occurred after Russia, a major producer, invaded Ukraine and blocked the flow of not only palladium but also other critical commodities, and the Western administration retaliated with harsh sanctions against Moscow.
After 11 months, palladium futures for March delivery fell to a low of $1,413.50 on the New York COMEX on Feb. 15.
That was the lowest price for a front-month palladium contract on the COMEX since March 2020, when it fell to $1,355.10.
Revised Projections
The drop occurred after Norilsk Nickel, the Russian corporation that is the largest producer of palladium as a corporate rather than South Africa as a country, reduced the global deficit it predicted for the metal’s supply this year.
Norilsk previously stated late last year that it expects a palladium deficiency of 800,000 tonnes in 2023. Yet, a Feb. 10 correction stated that the world supply of palladium would be only 300,000 tonnes short.
The revised projection jolted the palladium market, implying decreased demand amid a widely anticipated weakening of the global economy due to inflation and rising interest rates.
While the judgment is yet out on how the global automobile sector will perform this year, palladium charts show that if a fundamentals-based recovery does not materialize, chart-based liquidation could drive the metal to four-year lows next.
Metal futures are already on track for a third consecutive month of losses, after falling 8% in February, 9% in January, and 3% in December. It was trading just under $1,500 on Wednesday.
Palladium’s next significant red markers will be $1,305.20, which it touched in June 2019, and $1,256.50, which it achieved a month earlier.
Technical Analysis
Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com, cautions that a plunge below $1,400 could quickly degrade palladium’s chart strength. Dixit stated:
“Failure to break and hold above $1,578 might expose palladium to a first test of $1,396, which could lead to the $1,256 swing low, followed by an extended lower leg of $1,095.“
Notwithstanding the bearish possibility, there is still upside potential on the palladium daily and weekly charts if the 100-month Simple Moving Average of $1,420 continues to act as a measure of support. Dixit went on to say:
“Additional upward will remain conditional to prices staying over $1,420 on the downside while a sustained break above $1,578 is necessary for confirmation of a trend change. This will convert the midterm picture to optimistic, with an upward objective of $1,650-$1,710, and possibly $1,780.“
The Platinum Effect
The usage of platinum as a substitute for more expensive palladium is also anticipated to exacerbate palladium demand.
Palladium was traditionally utilized as an emissions purifier in gasoline-powered vehicles, whereas platinum-laden catalytic converters were used in diesel-powered engines.
That was the industry norm just two years ago, with many experts deeming platinum a poor substitute for palladium.
But, the metal’s low price has subsequently won over detractors, especially after palladium reached an all-time high of about $3,500 in March last year, compared to its so-called sister metal, which was selling at less than $1,240 — or around two-thirds cheaper.
Platinum was the best-performing precious metal price in 2022, growing 12.0%, while palladium fell 1.7% and silver and gold rose 4.8% and 1.3%, respectively.
Platinum futures for April delivery on the COMEX were trading at slightly over $942 an ounce on Wednesday, still about 37% cheaper than palladium.
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