Battle in the palladium market

09/23/2005

By: Gareth Tredway
Posted: 20-SEP-05 © Mineweb 1997-2004

CAPE TOWN (Mineweb.com) --The sharp decline in the palladium price this past few years could continue as a small battle wages between investors and sellers of the metal.

Jeff Christian, managing director for the CPM Group, an independent precious metals consultancy, says those long and short of the white metal are stand firm, in what should eventually result in a win-win situation for both parties.

“Palladium is a very interesting metal right now,” says Christian, “It is a very small market and a very illiquid market. Right now we basically have battle lines being drawn in the palladium market.”

In a presentation organised by Johannesburg firm, Noah Financial, Christian explained the palladium’s roller coaster ride since its $1,000/oz spike in 2002.

Shortly after the spike, the Russian government decided to repay a loan with palladium, which had been put down as collateral.

The European bank initially decided to hold the stockpile, thinking the price might rise again, but as it fell further towards the $350/oz level, it decided to sell.

“They sold everyday from October 2002, To April 2003,” says Christian, “During that period, if you need palladium, you knew whom to call.”

The bank ended up selling more than three million ounces of palladium, and by the time the last ounce was sold in September 2003, the price was $200/oz.

And despite a brief spike to $340/oz in early 2004, the price has stayed within a range of $180/oz and $200/oz ever since then.

Some hedge funds and commodity funds have meanwhile bought large physical and long futures positions in palladium, according to Christian.
“In the expectation that at some point over the next two to three years the price is probably going to go back to $350/oz.”

On the flip side there are funds in the futures market and said: “We are willing to short it (palladium) because we think the price could break below $180/oz and spike down to $160/oz, or even $140/oz,” according to Christian.

The longs are then saying that if the shorts do want to drive the price lower they will buy more metal. “They are saying: ‘we will not sell here to cover ourselves from a loss,” says Christian, “Because you cannot re-build these kinds of positions without driving the price sharply higher.”

“And there has been tremendous resilience on the part of the longs that they are willing to hold this stuff,” says Christian.

Christian adds that industrial users are saying that they would also wait for the price to go to $160/oz.

In conclusion, Christian felt that both parties would probably end up winning in this situation. First the price would take a dip, where the longs do buy up more metal; thereafter it would start to pick up. He says the next downward move could happen in December.

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