Palladium Nearing ‘Key’ Level Before Further Gains Toward $1,000

May 08, 2014 9:25 pm ET

May 8 (Bloomberg) -- Palladium prices that climbed to the highest in more than 2 1/2 years are approaching a “key” resistance level before a long-term advance toward $1,000 an ounce, according to Swissquote Bank SA.

The $848 to $861 resistance area comprises the August 2011 and February 2011 highs, said Luc Luyet, a senior market analyst at the bank in Gland, Switzerland. Prices may then drop toward $755, before resuming gains, he said.

Palladium climbed 12 percent this year, outperforming platinum, silver and gold, on concern supplies may be restricted by a miners’ strike in South Africa and as western nations threatened sanctions against Russia. The countries are the biggest producers of the metal that’s mainly used in pollution- control devices in cars. Palladium demand is set to exceed output for a third straight year, Barclays Plc estimates.

“We can grind a little bit higher toward $848 to $861, but these levels are likely to hold at the first stage, which should lead to some sort of correction,” Luyet said yesterday by phone. “If we break these levels, a fast rise toward $1,000 is expected, especially if we’ve been able to consolidate a little bit before.”

Palladium for immediate delivery rose to $820.90 an ounce on May 6, the highest since August 2011, and was at $799.70 today, according to Bloomberg generic pricing. It set a record $1,125 in 2001. After advancing from $159 in December 2008, it traded between $537.54 and $861.24 since early 2011.

‘Sharp Rise’

“The consolidation that’s taken place since 2011 is like some sort of pause after the sharp rise which started in 2008,” Luyet said. “As a result, we still expect to see further strength toward $1,000 or even the high at $1,125.”

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in an asset or security.

South Africa accounted for about 37 percent and Russia about 42 percent of supply last year, according to London-based Johnson Matthey Plc. More than 70,000 mine workers have been on strike since January in the African nation, costing Anglo American Platinum Holdings Ltd., Impala and Lonmin Plc 16.6 billion rand ($1.58 billion) in lost revenue.

In their worst standoff with Russia since the fall of the Iron Curtain, the U.S. and the European Union have joined Ukraine’s government in accusing President Vladimir Putin of fomenting unrest in eastern Ukraine after his government annexed Crimea in March. They’ve imposed sanctions on people and companies close to him and are threatening to widen the scope if Russia doesn’t help calm the crisis. Putin said yesterday Russia pulled back its troops from the border and called on separatists to postpone planned plebiscites on regional autonomy.

Russian Supply

There’s no sign yet that Russian supplies have dropped amid the crisis. Russia’s palladium shipments through Switzerland were 201 kilograms (443 pounds) in March, compared with 204 kilograms in February, according to the Swiss Federal Customs Administration. Russia typically exports the metal to Switzerland for storage.

Global palladium consumption will rise 2.5 percent this year, leaving a supply shortfall of 783,000 ounces, according to Barclays. Carmakers account for about 73 percent of demand, using the metal in devices that convert emissions into less harmful substances.

Investors owned a record 82 metric tons of palladium valued at about $2.14 billion through exchange-traded products backed by the metal by May 6, data compiled by Bloomberg show. The holdings rose 22 percent this year.

Moving Averages

The commodity will remain supported while it holds above the April 21 low at about $773, Axel Rudolph, a technical analyst at Commerzbank AG in London, wrote in a May 6 report. A drop below that price would be bearish in the short term and could push the metal down toward about $750, he said.

Prices held above the 100- and 200-day moving averages since February. A potential drop toward $755 would be near the high made in January and where momentum may take the 200-day measure, Luyet said.

“That’s an area where palladium would have an attractive risk/reward ratio for a long position, given the long-term bullish technical configuration,” he said, referring to bets on higher prices.