Palladium price ticks upwards as South African mines coronavirus cases rise

Palladium price ticks upwards as South African mines coronavirus cases rise
  • Palladium price rose slightly as traders reacted to the rising coronavirus infections in South African mines.
  • More than 1,700 miners have been infected while 10 of them have died.
  • The price is lagging because of the rising coronavirus cases in the United States and China.

Palladium price is up slightly as traders reflect on the rising coronavirus infections in South Africa and the ongoing recovery in Asia. The precious metal is trading at $1850 per ounce, which is near its lowest level since June 4.

Palladium Price
Palladium price 30-day performance

Recent weakness in palladium price

Palladium price has declined by more than 5% this year. In contrast, gold has jumped by more than 16%.

The divergence between the two metals is mostly because of their usage. On the one hand, gold is mostly used as an investment or store of value. Indeed, most gold that is mined is bought by central banks and asset management firms.

Gold is also seen as a safe haven asset, which means that its demand increases when risks rise. The recent policies of global central banks have also pushed more people to buy the metal.

On the other hand, palladium is both a precious metal and industrial metal. As an industrial metal, palladium is mostly used in the automotive industry, where it acts as a catalytic converter.

The automobile industry has been affected significantly by the pandemic. Indeed, many automobile companies like Daimler, Volkswagen, and Toyota have seen revenues drop by double digits because of the lockdowns. This has affected the demand for palladium.

Palladium vs Gold
Gold vs palladium price YTD performance

Palladium demand and supply

In recent weeks, economic data has suggested that the global economy is bouncing back. For example, early this month, the Bureau of Labour Statistics in the US reported better-than-expected nonfarm payrolls numbers. And this week, data from Markit showed that business activity was bouncing back in Europe, Australia, and the US.

More so, recent numbers have shown an uptick in vehicle purchases in some countries. For example, according to the China Passenger Car Association, new vehicle purchases rose in May for the first time in a year. Another data showed that German car registrations improved in May as the lockdown ended. This is an indication that demand for palladium could be rising, albeit slowly.

However, there are three main issues. First, analysts expect that the recovery of the auto sector will be slow, with the world facing record unemployment. Third, the ongoing transition to electric vehicles will affect demand because these vehicles do not require a catalytic converter.

Finally, the number of coronavirus cases is rising in most important countries, such as the US. Just yesterday, Texas announced a pause of its reopening process.

South Africa cases rising

Supply challenges will likely offset the sluggish demand issues. For example, South Africa, the second-biggest palladium producer, is seeing a surge in new coronavirus cases. Health officials reported 6,579 new cases yesterday and 5,688 cases on Wednesday.

According to Bloomberg, mines are facing long delays in bringing thousands of workers back. The report estimates that miners will take at least a month to get back all their workers back to work. Mining capacity is at about 50%. And according to Reuters, the number of cases in the mines has been rising. More than 1,700 miners have tested positive while 10 of them have died.

The same story is happening in Russia, the biggest palladium producer. While daily cases have fallen, they remain relatively high. The government reported more than 7,000 new infections.

As a result, analysts expect the supply deficit to narrow this year. In a recent report, Metals Focus expect the deficit to be about 124,000 ounces, down from the previous estimate of 899,000 ounces.

Palladium price technical analysis

Palladium Price
Palladium Price technical analysis

The palladium price is trading at $1,850. On the daily chart, this price is below the 50-day and 100-day exponential moving average. The price is also below the important 61.8% Fibonacci retracement level. It is also forming a descending triangle pattern. As such, a break below the lower support line will mean that bears have prevailed. It will then see the price attempt to move below the next support at $1,800.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
Invezz uses cookies to provide you with a great user experience. By using Invezz, you accept our privacy policy.