Palladium price analysis: A correction or end of the rally?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jun 26, 2021
  • Palladium has weakened from the record highs above $3000 registered in May 2021
  • There is no risk of the positive trend reversal
  • Tighter pollution standards are spurring demand for Palladium

Palladium has weakened from the record highs above $3000 registered in May 2021; still, as long the price is above $2500, there is no risk of the positive trend reversal. Palladium is used in the automotive industry, and the recovery of global business activity positively influences this precious metal’s price.

Fundamental analysis: Tighter pollution standards are spurring demand for Palladium

Palladium price remains in a bull market, many countries lifted the Covid-19 restrictions, and it seems that the worst has been avoided. The U.S. economy continues to recover from the pandemic; the U.S. central bank might raise interest rates sooner than previously expected.

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Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, and FED raised expectations for real GDP growth in 2021 to 7.0%. Christine Lagarde, President of the European Central Bank, also said that the outlook for the euro area economy is brightening as the pandemic situation improves.

Last week, the manufacturing indexes in the EU beat expectations signalizing that economy keeps progressing, while services output grew at a faster-than-anticipated pace. The travel sector shows signs of recovery, booking trends are shoving the improvements, and economic growth could rebound much quicker than expected.

European Central Bank will keep its ultra-loose monetary policy to avoid spikes in borrowing costs while the increasing vaccinations together with government spending will drive higher growth and keep the market stable.

It is important to mention that Palladium is a precious and industrial metal, and as an industrial metal, it is primarily used in the automotive industry. Stricter environmental standards are fueling automaker’s demand for Palladium, and according to estimates, the total global supply of the precious metal will fall in the upcoming quarters.

“The palladium market has been in a production deficit for several years, and tighter pollution standards in Europe and China are spurring demand for the metal. Fundamentally, there’s going to be a material deficit this year, and automakers need to restock,” said Tai Wong, head of metals derivatives at BMO Capital Markets.

The automobile industry shows the sign of recovery; commercial vehicle registrations in the European Union increased 51.3% to 165,363 units in May, followed by +179.2% in April. In the United States, vehicle registrations grew by 41.47% in May compared to the same period last year.

Technical analysis: There is no risk of the positive trend reversal

Data source: tradingview.com

The important resistance levels are $2700 and $2800, $2500, and $2300 represent the strong support levels. If the price jumps above $2700, it would be a signal to trade Palladium, and we have the open way to $2800.

On the other side, if the price falls below $2500, it would be a strong “sell” signal, and we have the open way to $2300.

Summary

Palladium has weakened from the record highs above $3000 registered in May 2021, but there is no risk of the positive trend reversal for now. The global economy continues to recover from the pandemic, and tighter pollution standards are spurring demand for Palladium.

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