Outlook:

Short term
(1-3M):
Up
Medium term
(1-3M):
Flat
Long term
(12M):
Up
Resistances:
R1 917 Jun 2017 high
R2 977 Jan 2001 high
R3 1,000
R4 1,062 40 DMA
R5 1,090 20 DMA
R6 1,110 Jan 2001 high
R7 1,140 Jan 2018 all-time high
Support:
S1 1,100
S2 1,090 20 DMA
S3 1,062 40 DMA
S4 1,000
S5 989 200 DMA
S6 966 UTL Feb 2016 low
Stochastics:
Converged in low ground
Legend:

BB – Bollinger band
ETF  exchange traded fund
DMA - daily moving average
HSL horizontal support line
SL  support line
MACD  moving average convergence divergence
DTL  downtrend line
UTL  uptrend line
H&S  head-and-shoulder pattern
RSI  relative strength index




Analysis
  • Palladium is consolidating around $1,100 per oz; recent selling pressure has been limited by dip-buying support around $1,070 per oz, as implied by the tails on the recent daily candlesticks.
  • Momentum indicators appear somewhat stronger - the stochastics have crossed higher in mid-ground while the RSI, at 57, remains in positive territory.
  • The rising 20 DMA at $1,090 per oz is seen providing immediate support , with further support seen from the 40 DMA at $1,062 per oz.
  • Further scaled-up resistance above is at the mid-January high of $1,140 and last week's all-time high at $1,152 per oz, above which palladium has space to extend higher.
Macro drivers
Equities markets have a positive tone so far on Friday November 2 after Chinese authorities pledged more aggressive support to counter the slowing momentum implied by the latest PMI readings, and a phone conversation between Presidents Xi Jinping and Donald Trump raised expectations of an easing in trade tensions.

Figures yesterday showed light vehicle sales in the United States ran at an annualized 17.51 million vehicles in September, up from 17.43 million units in September, supported by sales to replace vehicle damaged by during Hurricane Florence. Despite the current strength, full-year sales appear set to record a small contraction on the 17.3 million units sold in 2017.

Net length among Nymex speculators increased for a ninth consecutive week in the week ending October 23 - the drop of 226 contracts in fund shorts reinforced a further 1,499-contract build in fund longs. 

ETF holdings remain on a downwards bias awhile pockets of disinvestment continue to feature. Holdings stand at 0.826 million oz, down from 1.332 million oz at the start of the year, based on the funds we track. The bulk of liquidation has been from from South African investors after rand-denominated palladium extended to fresh all-time highs. Investors are clearly not enamored by the long-term prosp
ect for auto-catalyst demand due to the electric vehicle revolution.

Norilsk Nickel - the world's largest palladium producer - reported refined palladium production of 699,000 oz in the third quarter, down 14% year on year because of lower metal content. But palladium production in January-September increased 3% year on year and Norilsk maintains its 2018 guidance at 2.63-2.73 million oz. But global production is set to slow in 2019, with mine supply from South Africa to slow and Impala Platinum set to cut production by 30% in the next two years. 

The underlying fundamentals are set to remain supportive, with the market projected to remain in a structural deficit in 2018 at 239,000 oz, adding to the 801,000-oz deficit last year, according to data from Johnson Matthey. 

Conclusion
The limited nature of the recent correction reflects the supportive structural fundamentals and the bullish sentiment among speculative investors. But while the market has absorbed a great deal of ETF disinvestment, prices may need a deeper bout of consolidation before extending to fresh highs.


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.