The spot price of palladium has rebounded from a near two-year low while that of platinum has bounced as well, after nearing a one-year trough. Are both on the cusp of a continued recovery that makes them “safe-buys?”
“Hardly” would be the reply from a fundamental point of view. But “probably” might be appropriate from a technical perspective.
The difference in the two responses could not be more distinct.
Anyone who follows PGMs, or platinum group metals, will know that palladium is used primarily as an emissions purifier for gasoline engines while platinum serves the same function for diesel cars.
The global semiconductor shortage and its throttling of auto production is far from over and as such, the most important fundamental aspect of demand for the two PGMs is far from assured.
Therein is the basis for the first answer.
All charts courtesy of skcharting.com
Now for the second part—technicals.
After a five-month long dive in prices that took spot palladium to a 23-month bottom of just under $1,856 an ounce and spot platinum to a 11-month low of $953—both in September—the two PGMs appeared to have seen their worst for now.
In Monday’s session in New York, spot palladium advanced 1.6% to settle at $2,112.18. Analysts mostly attributed the bounce to short-covering after December platinum’s tumble to support levels of around $1,855.
Most-active platinum futures for January, meanwhile, slid 1.7% on Monday to $1,008.37.
PGMs analyst Soni Kumari of ANZ said:
“Fundamentals haven’t changed much with the auto sector continuing to face challenges due to micro-chip shortage. Until we see auto production recovering meaningfully, which will depend on availability of semiconductors, we expect PGMs (platinum group metals) to remain volatile.”
So, will the nascent technical recovery in spot palladium last?
Possibly, if it doesn’t crumble at its next target high of $2,400, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.
He said the palladium weekly chart has displayed a reaction of sorts, shying away from the 200-week Simple Moving Average while holding a positive overlap of the Stochastic Relative Strength Index from below the 20 line.
“However, it remains to be seen whether the showdown will continue in favor for the bulls and continue to scale up to the 100-week SMA of $2,290 and the 50-week Exponential Moving Average of $2,400, or bears will reject the bounce back and push the metal down to the 200-week SMA of $1,760,” Dixit said.
If the downside persists, spot palladium could see a short-term correction to $2,025, that may extend to $1,950, “before resuming the upside momentum to test $2,290 and $2,400”, he added.
Spot platinum, meanwhile, has completed its sideways to down move as per the target range of $895-$1,035, Dixit said.
“Going forward, the weekly chart for spot palladium shows prices are likely to be supported by the 100-SMA of $985. This will help the metal to spend some time for accumulation and consolidation between the $985 support and $1,040 resistance.”
“Breaking and sustaining above $1,040 should be followed by further upside attempts at $1,080. We see platinum reclaiming the $1,080-$1,110-$1,140 levels over an extended period of time, subject to prices holding above the 100-week SMA of $985 for the time being. Breaking below $893 can invalidate the theory.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.