Very short term (1M):   Up
Short term (3M): Up
Medium term (6M): Up
Long term (12M): Up
Resistances:
R1 1,600 Psychological
R2 1,617.50 record high
R3  
Support:
S1 1,466.5 Apr high
S2 1.267 May 2019 low
S3 1,259 Jan 2019 low

Stochastics:
Bullish
Legend:

BB – Bollinger band
D/WMA – daily/weekly moving average
D/UTL – down/uptrend line
ETF – exchange traded funds
H&S – head-and-shoulder pattern
HSL – horizontal support line
MACD – moving average convergence divergence
RSI – relative strength index
SL – support line

Analysis
  • The rebound momentum in palladium since the June low is surprisingly similar to that of its bounce from the February low to the March 21 high of $1,617.50 per oz.
  • The series of higher highs and lows are keeping the bulls in charge for now.
  • Technical indicators such as the daily RSI and stochastic lines remain in bullish territory are but vulnerable to turning lower if selling pressure re-emerges.
  • While we question the rise in the palladium price, we cannot deny that there has yet to be any decent technical pullback to suggest the rally is a healthy one.
  • Instead, we think that there is an inherent risk to the current rally even though we envisage a fresh 2019 high.
Macro drivers
Unlike the rest of the precious metals, divestment continues in palladium ETFs. The liquidation of 6,849 oz lowered holdings to 642,650 oz as of July 1. With the spot palladium price near a record high, the allure of locking in profit is understandably high, resulting in the release of stocks into a very tight market.

The tight fundamental backdrop remains price-supportive. The market deficit in palladium is set to widen dramatically in 2019 to 809,000 oz from last year’s 121,000 oz, Johnson Matthey reported - and eighth consecutive year of deficit. In fact, the cumulative deficit is set to surpass 5 million oz by the end of 2019, leaving above-ground stocks at just 13 million oz, according to a Metal Focus forecast.

Although global auto sales have struggled to grow this year, a large chunk of the sales are in gasoline-powered vehicles - diesel-powered vehicles have lost some of their allure because of emission scandals. Stricter environmental legislation around the world has encouraged automobiles to reduce emissions, which has boosted the palladium loadings in catalytic converters, even though platinum price around $700 per oz cheaper. Despite talks of substitution, automotive producers are unlikely to swap palladium for platinum any time soon.

On the speculative front, Nymex speculators increased their net long fund position (NLFP) via fresh buying of 644 contracts in the week to June 25. This, the sixth consecutive weekly increase, pushed palladium’s NLFP to 10,849 contracts, suggesting sentiment remains bullish. The move was driven by the addition of 1,638 contracts in gross longs that easily offset the 994 contracts added by gross shorts. While the palladium price rises, there is growing interest in selling among specs. For now, though, the dominance of eager buyers is propelling the price higher in the very short term.

Conclusion
The limited pullback and steady upward momentum indicate that palladium is well positioned to challenge the psychological price level at $1,600 per oz and potentially the record high from March.


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