12-17-2017: March Palladium: Out of Whack with Platinum

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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A National Futures Association advisory on Bitcoin futures trading might apply to palladium as well. The information is given that while futures trading is regulated, trading in the underlying commodity may not be. This can produce in some cases extreme volatility and market distortions. For years palladium has traded at substantially less than platinum, given platinum's other uses such as jewelry, but the current "inversion" places palladium at a higher price than platinum. One cannot point to supply/demand for explanation very long as the two metals have identical uses in catalytic converters, which constitues their main market. As far as we can see (subject to check) auto makers can switch back and forth between platinum and palladium in converters when price advantages dictate, which puts a ceiling above how high palladium futures can go constrained by platinum. Most analysts anticipate a rather rapid return to a more normal price relationship between the two metals.

Still, the runnup in palladium prices is continuing to the extent that our technical prediction systems favor a continued uptrend. We know palladium futures will top out at some point, but that point may not have yet been reached. We see a likelihood that the trend will continue for a while longer.

Intermarket Analysis

We fed Palladium, Platinum, and Gold into a neural network to get the following result:

Parabolic Chart

March Palladium:

Parabolic Chart

Nirvana Chart

March Palladium::

Initial Chart

News Analysis

On September 28th, palladium costed more than platinum for the first time since 2001. Palladium prices increased 20.7% in 2016 while platinum droipped below $1,000/ounce fpr tje first time since 2005. Throughout 2017 the diverse directions in pricing continued to the point where palladium is now about $150/ounce more expensive than platinum!
Normally, the platinum group metals price movements correlate very well, but in the past year there has been an obvious diversity. Between 2007 and 2012, the gap between palladium and platinum prices tood at just over minus $1,000 on average versys the plus $150 today. So whkat is going on?

Mine production for both platinum and palladium has declined but platinum demand stayed flat while palladium demand grew. Palladium demand was largely due to an increased need for autocatalysts, which are used in cars. Most of the demand was driven by China. Platinum production was challenged by work stoppages and mine suspensions in South Africa, but the drop in mine output was offset by an increase in scrap supply. A lot of platinum jewelry was recycled. Either of the two metals can be used in emission control devices in automobiles. Many analysts think the palladium market has moved too far too fast and is vulnerable to correction, while platinum prices should recover to be at least on par with palladium.

Palladium electronic traded funds saw a huge inflow of investors moving into palladium according to Commerzbank. But only a few thousand ounces of platinum have been withdrawn from platinum ETF's, as ETF investors also are remaining quite loyal to platinum.

UBS data shows 78% of the demand for palladium came from the auto market. Strong sales of gasoline-powered cars in the U.S. and China have helped drive the demand for the metal. Palladium prices have doubled in under two years. The global economy has ramped up demand for commodities while weak global mining investment has led to concerns over supply. Palldium is not the only metal to skyrocket in recent years. Aluminum, copper and nickel have also scored big gains. Tungsten, used in drills and military projectiles, golf clubs and automotive machinery has seen its price also spike dramatically in recent months.

In China, miners have been subject to a crackdown aimed at ensuring they follow environmental regulations. Cobalt, used in car batteries, is also soaring.

The price of gold, which has also been rising, tends to have an effect over the entire precious metals conflict. Gold is considered a safe haven in the wake of North Korean missile launches and the devastation caused by hurricanes and fires in the U.S. Semiconductor sales have also grown and 12% of palldium is used in electronics. Palladium also has geopolitics on its side, beginning with Russia. Sanctions on Russia have interefered with its maintaining stable palladium supplies. Switzerland, Japan, Australia, and Canada and the Euro Zone have all imposed sanctions on Riussia, but Norilsk Nickel, a leading producer of palladium has 50% of its shares owned by Russian oligarchs. Nrilsk Nickel said its palladium production fell by 2% in the first half of this eyar from a year ealrier.

Palladium-based nonomaterials paly a significant role in hydrogen purification, storage, detection, and fuel cells, and as hydrocarbons are becoming a vital energy soiurce for the U.S. military and elsewhere, while used sparingly these technologies, could raise concerns about supply.

China may end subsidies and tax breaks for auto sales. A move away from petroleum-based fuels in automobiles could also reduce demand for palladium. The effect of this is not expected to be significant for many years.

Kitco Metals believes palladium may be standing near the edge of a cliff. Banks see platinum group metals prices often running ahead of their fundamentals. Platinum could be easily substituted for palladium in most applications. Once the prices of the PGM's start to equalize, investors could scramble out of palladium as quickly as they got in. Palladium seems to work better in gasoline powered vehicles while platinum is better for diesel powered ones. There has been growing negative sentiment woard diesel vehicles in Europe as a result of the environmental testing scandals there. And the amount of palladium available from recycling is on the rise.

Point & Figure Chart

1100.I                                                                  T 12/15
     I NYM - Mar-18 Palladium, 100 troy oz., $/oz. Cm.=0.30  Lim.=30.0
     I                                      X
     I                                      X
     I                                    X X
     I                                  XOXOX
     I                                  XOXOX
     I                                  XOXO
     I                                  XOX
     I                                  XO
     I                                  X
     I  X                               X
     I  XO                              X
     I  XO                            XOX
     IX XO                            XOX
     IXOXO                            XO
     IXOXO                            X
     IX  O    X XO                  XOX
     IX  OX X XOXOX                 XOX
     IX  OXOXOXOXOXO            X X XOX
     IX  O O     OXO          XOXOXO
     IX          O O      X   XOXOX
     I             O      XOX XOXO
     I             OX     XOXOXOX
     I             OXO    XOXOXOX
     I             OXO    XOXOXOX
     I             OXO    XO OXO
     I             OXO    X  OX
     I             OXO  X X  O
     I             OXO  XOX
     I             OXOX XOX
     I             OXOXOXOX
     I             OXOXOXOX
     I             OXOXO OX
     I             OXOX  O
     I             O OX
     I               OX
     I               OX
     I               OX
     I               O
          11111      1       111          111
The above chart is giving a conventional buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Pattern". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Palladium (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system is working on a long-term sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $100. Initial margin on a single contract is $7,019. Use of options is advised.

Historic Range

Scale trade sellers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are starting to get increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that the current uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Palladium June 1000 Put and Sell (1) Palladium June 1010 Put @ 5.60 to the sell side or greater.

o 1 o 2 o 3 0 4 o 5

The following is an effort to track previous option trade prices if positions were held indefinitely.

*** It should be understood that some of these trades may have gone through periods where they were very profitable before moving out of the profitable range. This can be tracked by reading the "Option Trade" section of the corresponding article and noting on the option graphics chart shown there the corresponding profit or loss for previous underlying commodity prices. Thus any of the above trades might be or have been profitable if terminated at the right time, underscoring as with all commodity trades the importance of continuous monitoring.

Calendar Spread

What the Mar. - Sep. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at +5.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +18.00 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be at the buy the far, sell the near point.

Level Table:

Level Table

The path of least resistance is up.
1040 |                                                                 R 12/15
 NYM - Mar-18 Palladium, 100 troy oz., $/oz. Cm.=0.30  Lim.=30.0
     |XXXYYZZZZ[   <<<
590.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.303
       1                                       1 1 1 1 1 1           1
       2 1 1 2 2 3 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 1 2           2
       1 0 1 0 1 0 1 3 1 2 1 2 1 2 1 2 0 2 0 2 0 1 0 1 3 1           1
       9 3 8 1 5 2 6 0 3 8 2 6 2 6 1 5 8 2 6 0 4 8 1 5 0 4           5

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart

                 Risk Versus Opportunity Report

                     PAH8    March Palladium

                      High Price:  1090
                   Current Price:  1015
                       Low Price:  978

                            Risk:  0.072
                     Opportunity:  0.145

                    (O/R) Ratio =  2.027

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 1
Point & Figure + 1
Cyclicals + 1
Seasonals + 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range - 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 4
Place 2 March Palladiium on a Buy Watch with stoploss @ -37.70 below the get-in point when recent price is represented as "1015.40".