By Syndication Washington Post, Bloomberg · Elena Mazneva, Justina Vasquez
The silvery-white precious metal used in catalytic converters has been on a tear this year that shows no signs of slowing. On Thursday it rallied to a record $2,395.71 an ounce and has notched a 19% gain for 2020 after skyrocketing 54% last year.
The gains are surprising even the most seasoned market watchers, who say there's little chance that tight supply conditions will ease. South Africa, a major miner, reported a sharp drop in platinum-group metal production in November. Adding to the bullish mood was the U.S.-China trade truce, and record car sales in Europe last month even though they are unlikely to be repeated.
"The dynamics are so strong. Nobody can tell me that this is just fundamentals," said Commerzbank analyst Carsten Fritsch. "This is already becoming a bubble."
Palladium's rise also has been fueled by strong demand as stricter emissions targets force carmakers to use more of the metal in autocatalysts. As low mine production continues to be eclipsed by demand, investors with exposure to exchange-traded funds backed by the metal are holding on tightly, further limiting supply.
"My guess is it's getting more and more difficult to find someone willing to sell ETF positions to cover the market deficit," Giovanni Staunovo, a commodity analyst at UBS Wealth Management, said by phone Thursday. "This is part of the theory, if it's driven by the above-ground stocks. If you were to have it and you know there is no one willing to sell either tomorrow, why would you sell it now at a lower price if you know you can get it tomorrow at an even higher price?"
On Thursday, spot prices jumped by as much as 5.7%, or nearly $130 an ounce. The metal traded up 2.2% at $2,315.37 as of 10:06 a.m. in New York.
Palladium's less expensive sister, platinum, touched $1,041.71 an ounce in the spot market, the highest in nearly three years, before reversing. Gold and silver both dipped.
Still, palladium's technicals are stretched and some analysts expect a sharp and brief retreat. The metal's 14-day relative strength index has held above 80 for seven days -- the longest since 2016.
"It's overbought but ignoring it," said Rhona O'Connell, head of market analysis for EMEA and Asia at INTL FCStone. There should be a sharp pull-back at some point, she said.
Several market players meanwhile raised their palladium price forecasts for 2020, including HSBC Securities (USA) Inc. and UBS Group, confirming their bullish outlook for the metal amid a continuing supply deficit.
"The risk on the downside lies with some speculative profit taking, but any correction should be met with aggressive buying and remain short-lived," precious metals refiner and trader MKS PAMP Group said in a note.