We observed earlier this week that Platinum and Palladium Have Broken Out from a year old trading range. Interestingly, the breakout has gone rather unnoticed. Sporadically, we have seen commentaries about the breakout. From an investing point of view, we consider this as very positive, as momentum buyers are not entering the market (yet).
As a general rule of thumb, we all know that fundamentals are not always reflected in the charts. It mostly takes some time until the price follows fundamentals. For palladium in particular, there is a very high probability that its chart starts reflecting the strong supply/demand fundamentals. It this trend continues, then we are in for very interesting times, at least for investors who had the courage to get in at this price point.
We remind readers of the supply/demand imbalances, which make the case for palladium so compelling. This is a summary of the fundamentals as analyzed by Rick Rule (source):
- The palladium market is getting tighter and tigthter. The sector is facing a supply shortage since 2012.
- Russia has historically maintained a sizeable palladium stockpile which has represented a key source of supply over the past two decades. The supply overhang from Russian stockpiles was officially close to being depleted in 2013. That is significant since those stockpiles were a main contributor in balancing the palladium market for the last ten years.
- The Norilsk mines in Russia, which produce more palladium than the next four largest palladium producers combined, calculated to account for 42% of global supply, is not expected to expand its annual palladium production for at least 10 years. In addition, the existing operations are reported to be having difficulty maintaining their average 2.7 million ounces of annual production due to diminishing ore grades at depth within the ore bodies Norilsk is mining.
- Palladium demand has been robust; it has been primarily driven by increased use in autocatalysts, the demand for which was forecasted to increase by 7% in 2013.
Source Gold Silver Worlds