• Palladium strikes the highest level since 2001 making a local peak above $1000
  • The metal has been one of the best commodities this year advancing as much as 48% and leaving its peers way behind
  • Positioning data has yet to suggest overvaluation, the palladium-based ETF tests a crucial support

Amid quite a calm beginning of the week main focus has been on the commodity market where palladium has climbed above $1000 for the first time since 2001 being underpinned mainly on the back of global demand in catalytic converters used by gasoline-powered vehicles. At first, let’s notice that palladium prices have gained almost 50% so far this year leaving its major peers such as gold, silver or platinum way behind. On the surface, one would assume that the metal’s price might be already too high compared to other precious metals but it could be erroneous thinking.

link do file download linkPalladium has marked an incredible pick-up thus far this year which looks impressively in comparison to other precious metals. Source: Bloomberg

First and foremost, the fundamental backdrop of palladium seems to be much more promising than gold for instance. The metal’s price is being driven predominantly by the positive momentum created by expectations of a supply deficit amid surging demand. It has to be underlined that palladium exceeded platinum’s valuation last month for the first since in 16 years. One of the main reasons standing behind such a move was a source of usage of both metals as platinum is used to cut pollutants from diesel vehicles, which are now less popular, particularly in western Europe, after some automakers admitted to cheating in emissions tests. What’s more, according to Citi’s calculations European diesel-engine market share could halve by 2025, potentially getting rid of 300k to 600k ounces of platinum demand over the next 10 years.

Taking account of rising popularity of renewable energy which affects diesel cars one could assume that palladium demand could remain high making some concerns about potential scarcities and sending the price yet higher going forward. Having said that, even though palladium valuations appears to be already stretched relatively to its major peers, it has yet to be confirmed by the CFTC data.

link do file download linkThe net-positioning on palladium is still quite a long way off from its historical peaks suggesting the market has yet to become overstretched. Source: Bloomberg, XTB Research

We’ve repeatedly pointed that tracing weekly CFTC reports might come in handy when it comes to identifying possibly overvalued/undervalued markets. However, regardless of an amazing increase registered on palladium this year, speculative investors have not become unduly engaged in longs pointing to further space for potential rises in the nearest future.

link do file download linkETF Physical Palladium Shares (PALL.US on xStation5) has lively bounced back trying to establish its new all-time high. Source: xStation5

If you’re interested in trading the palladium market you can find the ETF with exposure to palladium on xStation5 platform. The price has tested recently a relevant support zone and a new week has started with a massive bullish candlestick. Using Fibonacci retracements one could project that $99 could be seen as the closest aim for bulls.