Short term
(1-3M):
Flat
Medium term
(3-6M):
Down
Long term
12M):
Flat
Resistances:
R1 1,861 200 DMA
R2 2,000
R3 2,056 20 DMA
R4 2,156 100 DMA
R5 2,320 40 DMA
R6 2,879 2020 & all-time high
Support:
S1 2,320 40 DMA
S2 2,156 100 DMA
S3 2,056 20 DMA
S4 2,000 Dec 17 high
S5 1,879 200 DMA
S6 1,433 Mar 19 low
Stochastics:
Crossed lower in high ground
Legend:

BB - Bollinger band
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
  • The palladium price is consolidating in a narrow range around $2,200 per oz on Friday April 3, although the Doji candlesticks in recent days imply indecision at current levels.
  • Momentum indicators have rolled lower though; the stochastics have crossed lower in high ground, while the RSI stands at 51 currently, which is neutral overall.
  • Further resistance is at the 40 DMA at $2,320 per tonne ahead of the March 31 high at $2,446 per tonne. Resistance above is at the March 6 high of $2,628 per oz ahead of the February 27 and all-time high of $2,879 per oz.
  • Dip-buying has featured below the 100 DMA, currently at $2,156 per tonne, as implied by the tail on yesterday's candlestick. The 20 DMA stands at $2,056 per tonne, below which the 200 DMA stands at $1,879 per oz.
Macro drivers
Equity markets have had a mixed start so far on Friday, while ongoing worries over the Covid-19 pandemic and its effects on global economic growth overshadow risk sentiment. 

The latest commitment of traders data shows net length among Nymex funds declined by 964 contracts to 291 contracts in the week to March 24, while long-liquidation outweighed an element of short-covering.

Net exchange-traded fund (ETF) holdings total 487,942 oz, based on the funds we track, down from 682,389 oz at the end of January. Given the relatively low level of exposure, the risk of further considerable disinvestment has been significantly reduced. 

The persistent backwardation in the forward curve reflects the structural tightness in the underlying fundamentals. Consultancy Johnson Matthey projects the global palladium market to remain in a sizable structural deficit in 2020, adding to the 1.1-million oz deficit in 2019, while rising emission standards increase autocatalyst loadings, outstripping metal supplies despite record levels of recycling from scrapped autocatalysts. 

These projections do not reflect the impact of the Covid-19 pandemic, however. LMC Automotive now projects global light vehicle sales to contract by nearly 14 million vehicles or 15% in 2020, and potentially by more than 20% to 69 million vehicles if the pandemic persists into the second half of the year.

There could also be some substitution away from palladium following German chemical group BASF's development of a tri-metal catalyst that will enable partial substitution of palladium with platinum in light-duty gasoline vehicles without compromising emissions standards.

Concurrently supply-side disruptions have intensified. South Africa's mine sectors have suspended operations for 21 days until April 16, with South Africa accounting for 38% of global palladium supply. This will add to the impact following the suspension of operations at Anglo American Platinum’s (Amplats’) Waterval facilities in Rustenburg, South Africa, following an explosion at the plant on February 10. 

Palladium's price premium to platinum stands at $1,501 per oz, down significantly from a recent peak of $1,980 per oz, but the fact palladium continues to command a strong premium reflects the diverging fundamentals between the two metals.

Conclusion
Price indecision has featured recently - as implied by the Doji candlesticks. Prices have weakened, reflecting the increased pressure facing the global automotive market, however, a small flag formation appears to be forming, which could suggest a continuation of upside price sentiment in the short term while the complex continues to benefit from safe-haven demand.

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