Palladium ETF positions held worldwide by investors were reduced by two tons in the past week. Since the beginning of this year ETFs investing in palladium have suffered from high capital outflows amounting to three tons, according to an analysis by German precious metals trading group Heraeus.
Palladium looks as though it's in a technical correction at the moment. Unable to move above $860 per ounce, global investors have started selling the metal - the price has now dropped to around $740 per ounce. The next major technical support is at $695 per ounce. Most other commodities have taken losses since the Japanese earthquake catastrophe. Prices have, however, recovered somewhat in the last few trading days. The Heraeus analysis stated that bullish price fundamentals are not currently offering support to the palladium price.
Several nations recently reported sales figures for their domestic automobile industries. In America, in spite of rising petrol prices, 993,000 vehicles were sold by dealers last month. This corresponds to a rise of 27% in comparison with the same period of the previous year. In Germany car sales climbed by 16% to about 225,000 cars. In Russia, sales rose even faster - by 80% compared to the previous year, reaching 165,000 units.
Enthusiasm was, however, curbed when the sales figures from China were announced. In comparison with last year's period, sales by domestic car dealers fell by 2.6%. All in all, 967,000 vehicles were sold, the biggest sales decline within the last two years. According to Heraeus, market experts said that the disappointing sales figures were due to the expiry of state subsidies on the one hand and due to the end of the New Year's festivities on the other. The fortunes of the automobile sector have a great influence on the prices of platinum and palladium, since both precious metals are mainly used in the production of catalyst systems.
If the global economy manages to avoid another 2008-09-style slowdown, palladium prices will probably rise quicker than those of other commodities, Heraeus said. In such a scenario, industrial demand would be high. Supply restraints will also become an issue if demand picks up. Russia's national palladium stocks will be seriously depleted over the course of this year; Russia's mining giant Norilsk Nickel warned of supply constraints last year.
But most investors seem to be more focused on short-term market technicalities right now. Buying palladium during this current correction phase could be beneficial for long-term investors who want to take advantage of the price setback for building up stocks. When investors once again start focusing on fundamental data, a price boost for the white metal is likely.
Roman Baudzus is a contributing writer for GoldMoney. The GoldMoney dealing desk also contributed to this commentary.
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