Daily Market Update

Palladium Surges To All Time Record High On Russian Supply Concerns

– Palladium prices surge to an all-time nominal high over $1,150/oz
– Russia is one of the top producers and growing tensions with the U.S. may result in a “supply crunch”

– Palladium is widely used in the automotive industry and is experiencing significant demand and a “supply crunch”
– Deep supply deficits in palladium are predicted by Citigroup and other analysts (see Bloomberg table)
– Gold and silver to follow due to similar strong supply and demand fundamentals

via Bloomberg

Palladium, a precious metal widely used in the automotive industry, has hit an all-time high.

The rally has been fueled by concern over shortages and speculators piling in to bet on even higher prices. The majority of palladium is used to make catalytic converters in gasoline automobiles, and there’s increased demand for the metal as consumers increasingly choose gasoline vehicles over diesel.

In a year that’s seen losses for most other commodities, the rally in palladium has been exceptional. It’s the one major metal that’s at an all-time high and prices have almost doubled in the past two years. On Tuesday, the metal advanced 1.8 percent to settle at $1,144.20 an ounce at 5 p.m. in New York. It earlier climbed as much as 2.5 percent to $1,152.54.

The rally has accelerated in recent days due to growing political tensions between the U.S. and Russia, one of the top producers, and stimulus measures in China, a key consumer.

“Supplies were already predicted to be in deficit this year,” and any future supply issues with Russia may exacerbate the problem, said David Govett, head of precious metals at Marex Spectron Group Ltd. “Forward rates are tightening and there is good physical offtake from the market.”

Here’s what you need to know about the rally:

Supply Crunch

The plunge in palladium holdings of exchange-traded funds is the biggest indicator that there’s a scramble for supply.

Holdings have dwindled in recent years, but it’s not a bearish signal. Rather, it’s an indication that there’s a lucrative business of lending palladium, where borrowers pay ETF holders a premium to use the metal.

Market Deficit

The market has remained in deficit as consumers turn toward gasoline cars, which tend to use more palladium in autocatalysts, instead of diesel. Shortages will probably persist though 2020, leading to the “tightest” market in two decades, according to Citigroup Inc.

Running Short

Citigroup sees `tightest’ palladium market in decades on deficits

Citigroup and Bloomberg


Substituting Metal?

The rally raises the risk that the auto industry, the biggest user of palladium, will look to reduce consumption and instead use more platinum in catalytic converters. It’s been 17 years since palladium was last this expensive relative to platinum.

Both metals are used in varying amounts in different engine types, depending on efficiency and price. While it can take years to design autocatalysts, sizable switching has happened before. The car industry cut palladium usage by almost 50 percent in two years through 2002 after prices spiked, and increased platinum purchases by 37 percent.

Too Fast?

Prices appear to have moved ahead of fundamentals in the short term, according to Georgette Boele, an analyst at ABN Amro Bank NV. The metal’s 14-day relative-strength index is at about 77, above the level of 70 that suggests to some chart watchers that palladium may have become overbought.



News and Commentary

Gold edges higher as political, economic concerns lend support (Reuters.com)

Trump calls Khashoggi murder ‘worst cover-up in history’ (BBC.com)

Miner Fresnillo trims silver output guidance (Reuters.com)

Euro zone businesses hit the brakes as trade war stalls growth (Reuters.com)

U.S. Stock Futures Decline as Europe Bucks Selloff (Bloomberg.com)

U.K. Cabinet at War Over Theresa May’s Brexit Plan (Bloomberg.com)

China will ‘compel’ Saudi Arabia to trade oil in yuan (CNBC.com)

Source: Bloomberg

Brexit Bulletin: May Faces Open Conflict (Bloomberg.com)

Financial Extremes, The Everything Bubble and Gold (Gata.org)

Stock market faces ‘unlimited downside risk,’ warns veteran trader (Marketwatch.com)

We Have Far More Control Than They Want Us To Believe

Trump says Fed Chairman Powell ‘almost looks like he’s happy raising interest rates’ (Zerohedge.com)

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Gold Prices (LBMA AM)

23 Oct: USD 1,235.60, GBP 950.67 & EUR 1,076.45 per ounce
22 Oct: USD 1,222.90, GBP 938.09 & EUR 1,062.21 per ounce
19 Oct: USD 1,228.25, GBP 942.44 & EUR 1,073.12 per ounce
18 Oct: USD 1,224.60, GBP 933.76 & EUR 1,062.83 per ounce
17 Oct: USD 1,226.75, GBP 933.68 & EUR 1,061.38 per ounce
16 Oct: USD 1,228.85, GBP 931.35 & EUR 1,061.73 per ounce
15 Oct: USD 1,233.00, GBP 937.70 & EUR 1,064.45 per ounce

Silver Prices (LBMA)

23 Oct: USD 14.71, GBP 11.33 & EUR 12.83 per ounce
22 Oct: USD 14.63, GBP 11.23 & EUR 12.72 per ounce
19 Oct: USD 14.61, GBP 11.21 & EUR 12.75 per ounce
18 Oct: USD 14.52, GBP 11.06 & EUR 12.60 per ounce
17 Oct: USD 14.65, GBP 11.16 & EUR 12.69 per ounce
16 Oct: USD 14.76, GBP 11.16 & EUR 12.74 per ounce
15 Oct: USD 14.74, GBP 11.19 & EUR 12.71 per ounce

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