After surpassing the $3,000 mark in early 2022, palladium has experienced a significant downtrend. In the two-year period from the end of January 2022 to today, the price of palladium fell by more than 57%, while its sister metal platinum only experienced a 9% decline. Despite interest rate hikes, gold and silver saw positive returns during this period. So, why did palladium prices diverge so negatively? The answer lies in the demand.
Looking ahead, the long-term outlook for palladium appears less optimistic. Palladium is predominantly utilized in the automotive sector to reduce emissions. The ongoing shift toward electric cars may lead to a decline in long-term demand. However, over the last two years, the pricing factor has played a significant role. As the price soared above $3,000 and geopolitical and sanction risks from Russia emerged, the automotive sector began to shift toward platinum instead of palladium. Now that the price has fallen below $1,000 again, there may be an opportunity for a rebalancing of this significant shift.
Additionally, many South African palladium mines are generating losses with prices falling so rapidly. As an internal factor, some of them might have to reduce production if it takes too long. There are risks on the supply side for 2024.
(Precious Metals Performance Daily Chart – 2 Years)
ETF holdings changes remained positive for palladium over the last year, especially starting from November when the price fell below $1,000. ETF palladium holdings rose significantly during this period. Over the last year, the holdings of palladium increased by 19.73%, while the corresponding numbers for platinum, silver, and gold were -3.02%, -7.22%, and -9.87%, respectively. The recent surge in palladium holdings could suggest that metal investors might be anticipating an upside reaction for palladium prices in 2024, despite the long-term weakness.
(ETF Holdings Percentage Change for Precious Metals)
Just above $900, palladium seems to have found support, as prices have jumped from that level three times already, and the downward pressures appear to be easing. At the end of 2023, a sudden jump to over $1200 did not last long, but as long as the support holds, it could be a hint of a trend change or the start of a consolidation period.
The 50-day moving average is near the downtrend line and serves as the first line of defense for the palladium bears. Above it, the 100- and 200-day moving averages have functioned as resistance over the last one and a half years, still holding strong. If all of them break in the coming weeks, then the talk about a trend change could be fair, and the next target might be the 23.6% level at $1500.
(XPDUSD Daily Logarithmic Chart)
