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| Analysis
While palladium continues its steep vertical upward trend, speculative fund positioning has started to diverge somewhat. In the week to December 11, palladium’s net long fund position (NLFP) dipped fell by 726 contracts to 14,245 contracts. This was mainly driven by profit taking from gross longs, with 941 contracts removed and only 215 contracts of short-covering. If Nymex speculators continue to take profit here, we suspect palladium’s NLFP will remain under downward pressure in the very short term. Perhaps a more pronounced divergence between fund positioning and the strong run-up in price will eventually trigger a mini correction in 2019. This might dovetail with the rather negative demand profile, especially from declining global auto sales. Following the 11.7% decline in Chinese vehicle sales in October, they continued to contract in November, down 13.9% year on year, according to the latest data. Monthly sales have declined for five consecutive months due to deteriorating consumer confidence in the Chinese economy as well as continued uncertainty from the US-China trade dispute. Total sales were down 1.7% in the first 11 months of 2018; they are on course for the first annual contraction in more than two decades. In Europe, passenger car registrations declined by 8% in November although total sales so far in 2018 are still up by a modest 0.8%. The European market has to adjust to WLTP emissions rules that came into effect on September 1. In the United States, automakers have trimmed their annual auto sales forecasts in 2019 by 1.1% for this year to 16.8 million units, according to the National Automobile Dealers Association. Higher interest rates as well as the large influx of cheaper second-hand fleet vehicles are pressuring sales of new vehicles. Long-term investors share a similarly bearish view - palladium's net ETF holdings dropped to 776,511 oz as of December 19. This is a contrast to 2018’s high of 1.32 million oz and reflects the deteriorating buying interest. Conclusion Palladium continues to run into buying pressure and its positively skewed technical configuration supports the current uptrend. Still, we are being mindful that there may be growing bearish divergence, which could trigger a short-term correction the prices turns around sharply. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
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