Palladium Soaring Again Sparks Concern of Bubble

The gains are surprising even the most seasoned market watchers, who say there’s little chance that tight supply conditions will ease. South Africa, a major miner, reported a sharp drop in platinum-group metal production in November. Adding to the bullish mood was the U.S.-China trade truce, and record car sales in Europe last month even though they are unlikely to be repeated.

“The dynamics are so strong. Nobody can tell me that this is just fundamentals,” said Commerzbank AG analyst Carsten Fritsch. “This is already becoming a bubble.”

Palladium’s rise also has been fueled by market concern over dwindling supplies as demand surges following stricter emissions standards in China, according to Australia & New Zealand Banking Group Ltd. The metal is trading at twice the premium over platinum, which may motivate carmakers to use it as a substitute, which could see prices catching up with palladium, the bank’s strategists said.

“A modest recovery in the auto sector along with tighter emissions regulations should lend support to PGMs,” ANZ strategists Daniel Hynes and Soni Kumari said in a report Jan. 17. Still, a “price setback is possible for palladium following its impressive rally this year.”

On Friday, spot prices traded 0.3% higher at $2,321.44 an ounce at 9:48 a.m. in Singapore. The metal is up 19% this year after skyrocketing 54% in 2019.

Sister metal platinum climbed 0.4% to $1,009.10 an ounce, after touching $1,041.71 on Thursday, the highest level in nearly three years. Gold held a decline after several economic reports Thursday showed American consumer demand remains strong.

Still, palladium’s technicals are stretched and some analysts expect a sharp and brief retreat. The metal’s 14-day relative strength index is now above 90.

Several market players meanwhile raised their palladium price forecasts for 2020, including HSBC Securities (USA) Inc. and UBS Group AG, confirming their bullish outlook for the metal amid a continuing supply deficit.

“The risk on the downside lies with some speculative profit taking, but any correction should be met with aggressive buying and remain short-lived,” precious metals refiner and trader MKS PAMP Group said in a note.