Technical Analysis: Can Palladium Break To New Yearly Highs?

| July 15, 2013 | 0 Comments

PalladiumOne thing’s for certain…

The South African mining industry is in a state of serious upheaval. 

Companies operating in the region have fallen on hard times due to rising operating costs and weak metal prices.  For example, Anglo American, which is the largest platinum miner in the world, reported a hefty full-year 2012 loss thanks to those headwinds. 

And that’s not all… 

Labor unrest has been a chronic problem for the South African mining industry in recent years.   Unfortunately, the troublesome issue is re-occurring this year with multiple miner strikes over the past month.  In fact, operations at Anglo American’s Thembelani and Khuseleka mines ground to a halt as recently as last week.

It’s fair to say that struggling mining companies are between a rock and a hard place in South Africa.  Workers are demanding dramatic wage increases of 50% or higher while metal prices have performed poorly thus far in 2013.

While this news in undoubtedly gloomy for miners, it’s bullish for the metals they produce. 

As a matter of fact, take a look at this chart of palladium…


As you can see, the metal has surged 14% from the swing low set a few weeks ago at $640 an ounce (blue circle).  Worrisome labor headlines out of South Africa are sending palladium higher.  Now the metal has its sights set on 2013 highs at $780 (green line).

Can the metal break above that important level?

You bet…

You see, the Bushveld Complex of South Africa holds the world’s largest underground supply of platinum group metals (PGMs), of which palladium is a part of.  Approximately 70% of global mined PGM production is found in this important region. 

But here’s the deal…

The hardships facing Bushveld miners give them very little chance of increasing palladium production anytime soon.  That’s why many commodity experts are predicting the global palladium market will fall into deficit soon. 

As a matter of fact, analysts at CPM Group suggest demand for the industrial/precious metal will outweigh supply by at least 60,000 ounces starting in 2014.  And in their worst-case scenario, CPM believes the deficit could be as large as 680,000 ounces by the end of the decade.

Of course, constrained South African palladium mine supply, along with growing usage of the metal in the global automobile sector, will likely result in sharply higher prices.

So keep a close eye on palladium over the next few months…

The metal has very good odds of testing yearly highs at $780 an ounce in the near future.  What’s more, bullish long-term supply/demand fundamentals make palladium a leading contender for outsized gains in the latter half of 2013.

Until Next Time,

Justin Bennett

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Category: Palladium, Precious Metals, Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.