Anomalous movements in precious metals unprecedented

The precious metals complex continues to display unprecedented and curious price movements of late and it has taken market participants by complete surprise. The known price relationships among metals such as palladium, platinum, silver and gold have gone for a toss.

If anything, in the absence of the weekly Commitment of Traders report issued by the US commodity derivatives market regulator CFTC following protracted shutdown of the government, the market positioning data are not available and price movements are becoming even more curious, leading all kinds of speculation about what’s causing the anomalous price movement.

In particular, palladium is breaking away from its kindred metals. To be sure, palladium was the best performing precious metal last year. But that performance would pale when you look at recent developments. From its August low, prices have stunningly rallied by nearly 50 per cent. This has been on the back of large structural deficits and lack of available supplies. On January 17, palladium reached a peak of $1,440 an ounce, having risen by a whopping $70 (5.4 per cent) from the previous day’s closing price.

A section of the trade believes that expectation of a stimulus package by China has triggered renewed buying interest. Also, it is widely believed that prices spurted because of speculative buying. Technical charts too have favoured an upward price movement. However, coming on top of weak sales for automobiles in most of the major markets, especially China, this kind of rally is rather surprising. Palladium is widely used in auto-catalyst fabrication.

If anything, this market seems to be gathering a lot of speculative lather which by its nature can disappear rapidly if experience is any guide. “Judging by the price movement, it looks to us as if a bubble is forming – and we believe it is only a question of time before the bubble bursts”, asserted a research report.

Experts expect another palladium deficit on the global market this year. Interestingly, palladium is currently some $600 more than its counterpart platinum. Indeed, this extent of price differential between the two metals is unprecedented. On their part, platinum prices have not reacted robustly despite ETFs registering inflows even as the metal continues to trade only a tad above $800/oz.

Equally, curious is palladium’s premium over everyone’s eternal favourite, gold. The former is at a 10 per cent premium over gold. The premium of over $100 was last seen some sixteen years ago. If anything, the yellow metal is currently struggling to decisively break the psychological $1300/oz barrier despite the fact that there is a chorus emanating from many analysts rooting for a sharp upswing in gold prices.

Surprisingly, after poor performance in 2018, silver has started the New Year on an optimistic note having comfortably breached the $15/oz mark and rallying to near a six-month high. Many analysts have give a ‘buy’ call on silver as it is likely to benefit from a possible rise in gold prices following expectation of a pause in Fed rate hike cycle and weakness setting in the dollar.

The writer is a commodities market specialist. Views are personal

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