Red Alert: Major Palladium Breakout?
Whew…
What a week for commodity markets!
Thanks to the unfortunate situation in the Ukraine, gold, silver, and oil are all over the map. Investors arrived at work on Monday to find all three of these assets surging higher in response to Russia’s apparent invasion of the Crimean Peninsula.
However, the rally didn’t last long…
Gold, silver, and oil gave up most of the gains on Tuesday after Russian President Vladimir Putin announced his country is not trying to lay claim to the embroiled region. Investors took Putin’s words as a sign he’s backing down from a serious conflict in the former Soviet Republic.
Obviously, this is good news for everybody.
The last thing this world needs is another serious military conflict.
But I digress…
It goes without saying that commodity investors need to keep a close eye on the situation. Don’t be surprised if we get a few more doses of market volatility before the dispute is finally put to rest.
Not that the situation in Crimea isn’t important, but what I really want to show you today is this…
Palladium is undergoing a very interesting technical move this week. The commodity is breaking above an important technical resistance trend line near $750 an ounce (green circle).
As you can see, each time palladium reached the red line in the past (red circles), it was turned lower by sellers.
But this time it’s different…
Palladium traded in a tight pattern near $740 before finally breaking above the resistance line yesterday. If the commodity can add to these gains in coming days, we could be witnessing the long-awaited palladium breakout I’ve spoke of many times in the past.
Remember…
Commodity analysts agree a large structural deficit is set to consume the global palladium market. As a matter of fact, Morgan Stanley (MS) believes a 1.3 million ounce supply shortfall will develop sometime this year. What’s more, Credit Suisse (CS) estimates the supply deficits will last through 2016, and possibly much longer.
How high can the metal run?
Most analysts see the metal trading at $850 by mid-2015. But given the built up buying pressure in the chart above, I see palladium trading at that lofty level by mid- to late-2014.
What’s more, if inflation expectations creep higher as they have over the past few months, the entire precious metals market will have the wind at its back. And that means bullish palladium investors will be even more inclined to push the metal higher.
All things considered, there’s a very good possibility of palladium overtaking the $900 level at some point in the not so distant future.
No doubt about it, this is the metal to watch right now…
One of the simplest ways to take advantage of the rising palladium prices is through the ETFS Physical Palladium Shares (PALL). The fund holds physical palladium in vaults located in Zurich, Switzerland and London, England.
Until Next Time,
Justin Bennett
Category: Palladium
