Palladium price: could the bubble have popped for good?

The palladium price has been a hot topic over the past six months, where a tightening supply/demand dynamic helped push the lesser known commodity through platinum and gold to take the top spot as the most precious of the common precious metals. A 95% rise for palladium came to an abrupt end three weeks ago, with the metal losing 14% in that period.

With the price having consolidated over the past two weeks, traders are understandably keen to understand whether this is the beginning of the next leg higher or if further downside is around the corner.

Why did palladium rise and then fall?

Palladium enjoyed a remarkably consistent seven-month period since the lows set in August 2018. Much of this has been attributed to the tightening demand/supply dynamic, as production failed to keep up with a sharp rise in demand globally. One of the key roles for palladium is to reduce car emissions as a catalytic converter. With growing regulations over emissions, car manufacturers are increasingly turning to palladium in a bid to bring their products in line. This growing demand was not matched by a rise in production, with the resulting squeeze providing a sharp upswing in prices.

Could we be set for further losses?

The automotive sector remains a key source of demand, yet it is that demand which markets are worrying about. Fears over weaker auto sales have hurt palladium hard, with worries over the effect of a slowing global growth picture. We are also seeing a substantial shift towards electric cars, which in the long term could decimate demand for palladium. Furthermore, with palladium overtaking the price of Platinum, there is also a case for car producers shifting their materials towards a lower cost input.

In any case, the demise of car manufacturing and emissions control is not quite upon us yet, with the current slump likely to be a case of the market coming back into a respectable level after an incredible seven months.

Palladium technical analysis

The daily chart highlights the recent slide, with the price in consolidation mode over the past fortnight. However, it is clear that the creation of lower highs and lows have still been established, pointing towards further downside to come.

The intraday chart highlights the recent rally into the 61.8% Fibonacci retracement, with price currently respecting trendline support. A short position looks attractive from a deep retracement, with a bullish outlook only coming about with a break through $1445. Look out for a break below $1370 to provide a bearish confirmation signal.