Palladium Price Forecast

The chart below clearly demonstrates PALLADIUM has indeed been the most precious metal since early 2010.  It shows the relative performance (i.e. Percent price increase from January 2010 to date 04/11/14):

Price Appreciation:

PALLADIUM SUPPLY

The two main sources of palladium supply are mine production and secondary recovery. In 2012, approximately 8.7 million ounces of palladium were supplied to the market, of which approximately 6.3 million ounces came from mine supply, and 2.4 million ounces from secondary recovery.

As a rare precious metal, there are very few palladium producing regions worldwide and few known economically viable ore bodies. Russia and South Africa, which are known to be higher-risk jurisdictions, account for almost 80% of global mine palladium production.

Growth in mine supply is problematical and constrained, largely owing to:

• Political, infrastructure and cost issues in South Africa;
• Declining palladium production in Russia; and
• There is limited number of new projects on the horizon in the near term.

In particular, South African production is challenged by deeper mines, power and water limitations, higher operating costs, geopolitical risks, shortage of skilled labour, and the strengthening of currencies. There do not appear to be any near-term solutions in place, and the South African PGM mining industry has already started to contract with over 250,000 ounces of palladium lost in 2012 directly resulting from shutting down operations due to labour unrest. These problems are expected to continue to affect PGM miners, and coupled with rising mining cash costs, will likely limit palladium supply from South Africa.

PALLADIUM USAGE

In addition to automotive catalytic converters, palladium is used in jewellery, electronic components for personal computers and cellular telephones, as well as in dental applications and in petroleum and industrial catalysts.

Since 2012 there has been a global Supply Deficit, which accounts for its sterling price performance in recent years vs the other precious metals.

Source: Sprott Physical Bullion

Yearly New Auto Growth Is Viral…Approaching Parabolic Demand

Looking back over the last few years one can say that despite ongoing global economic weakness, car sales have remained relatively impervious to the downturn despite being a big ticket item - in fact new car demand has actually risen to an all-time high of over 80 million cars per annum (that's 219,000 per day…or more than 9,100 per hour…equivalent to one car every 2.5 seconds). Without one iota of doubt that translates to burgeoning demand growth for palladium catalytic converters.

PALLADIUM SEASONALITY

The above 30-year Seasonality chart shows that late April, May and June are the worst price trend months for Palladium. Consequently, seasonal factors may play a role in holding back the price palladium for a couple of months.

Palladium Wildcards May Play A Vital Role In Fueling Its Price Higher

These wildcards are the perennial geo-political and perennial labor problems in South Africa, and: the Russia’s increasing belligerent aggression vis-à-vis the Ukraine. As former head of the dreaded KGB, President Putin entertains dreams of grandeur in reassembling the once worldwide powerful USSR.

Understandably, the above might cause acute worldwide shortages of palladium…thus fueling its price into orbit. An example of this was Friday (04/11/14) when palladium price surged $19 to $806, while the price of gold lost $2 closing at $1318. A more dramatic example was in December 2000 (when South Africa’s labor problem was seething), the price of palladium soared to almost $1,100/oz, when the price of gold was ONLY $300/oz.  Indeed, palladium was then valued more than four times higher than gold. See chart below showing palladium and gold:

Palladium Price Forecast – Short-Term

“Sell in May and go away” is a very famous adage in Wall Street. 

A well-known trading adage that warns investors to sell their stock holdings in May to avoid a seasonal decline in equity markets. The "sell in May and go away" strategy is that an investor who sells his stock holdings in May and gets back into the equity market in November - thereby avoiding the typically volatile May-October period - would be much better off than an investor who stays in equities throughout the year.

This strategy is based on the historical underperformance of stocks in the six-month period commencing in May and ending in October, compared to the six-month period from November to April. According to the Stock Trader's Almanac, since 1950, the Dow Jones Industrial Average has had an average return of only 0.3% during the May-October period, compared with an average gain of 7.5% during the November-April period.

In view of the above I verified how the price of PALLADIUM was affected in recent years during this critical mid-year period. I was amazed by the results (shown below) – and since we are in April, I used April as the Sell Month:

Average decline for these three mid-year periods was -24% in 3 months.

Consequently, one may reasonably assume it is possible that Short-Term PALLADIUM may fall to about $615/oz by July based upon the traditional “Sell in May and go away” strategy and recent history. However, the disruptive labor discord in South Africa may well mitigate any short-term correction in the price of palladium. Unfortunately, this is NOT measurable nor can it be reasonably estimated.

Palladium Price Forecast – Inter-Mediate Term (2014)

The chart below shows a Multi-Year bull flag.  And if the flag triggers, it would project palladium to $1400/oz.

Palladium Price Forecast – Long-Term

Long-Term Palladium Price Forecast must logically take into account  the unstable supply sources of this unique metal. Namely, Russia and South Africa, which are known to be higher-risk jurisdictions that account for almost 80% of global mine production of palladium. Moreover, palladium’s price surge in 2000 is a perfect example of what can happen when one of the two higher-risk regions (South Africa) suffers production problems. From 1999-2001 the price of palladium went parabolic from $300/oz to nearly $1100/oz due to acute and disrupting labor problems in South Africa.  And factoring in current unstable conditions (Labor discord in South Africa and Russian/Ukraine territorial turmoil),  palladium’s long-term price could conceivably go ballistic to $2500 to $3000/oz in the not too distant future.

Related 2014 Platinum Study:  “Platinum Price Forecast”

Related 2011 Palladium Study:  “PALLADIUM: It May Again Become The Most Precious Metal”