Palladium Price May Skyrocket In 2021 Due To Deficit / Price pauses in gold, silver, as equity markets do the same

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Apr 12, 2021 12:08 NY TimeKitco 10AM Silver Fix

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Summary

• The largest palladium ETF may start selling inventories to mitigate the palladium deficit in 2021.
• Palladium may be in deficit in 2021 due to Nornickel’s halt of production and increasing demand.
• This may result in a palladium price shock.

The only fund that keeps purely physical palladium ingots on its balance sheet is the Aberdeen Standard Physical Palladium Shares ETF (NYSEARCA:PALL). It is an exchange-traded fund established and managed by the Aberdeen Standard Investments ETFs Sponsor LLC. The main goal of the Fund is to reflect palladium prices; exactly for this, it holds physical ingots of the metal in its assets. PALL is the only public palladium fund in the United States. The chart demonstrates the dynamics of the number of ounces of metal held by the Fund. The Fund’s actions also illustrate the dramatic lack of palladium supply on the market that has forced it to sell its reserves. It can be seen that during the years of the deficit, there was an outflow of physical palladium from the Fund’s assets. Since 2011, the Fund has shortened its reserves from almost 12 million troy ounces to 1.6 million troy ounces.

On an industrial scale, palladium is produced as a by-product in the processing of copper and nickel ores. But despite the increasing demand, the palladium market is represented only by several major players, and that means it depends on them dramatically. Automotive, industrial, and electric power sectors are in the greatest demand for palladium.

The first chart shows the division of palladium demand by different sectors. According to 2020 data, the demand for autocatalysts has increased to 80%. The greatest demand for palladium is in the automotive industry. Palladium is essential for the production of catalysts for cars that reduce toxic exhaust emissions. This demand is largely determined by the introduction of strict rules for cars with gasoline engines in Europe and China. The second chart demonstrates a drop in car production in 2020, which reduced palladium consumption by 14%. According to estimates, the sector should recover as early as in 2021, which should again increase the demand for the metal.

In recent years, there has been a trend in developed countries towards the gradual rejection of gasoline-powered cars in favor of hybrid ones. Hybrid autos also use autocatalysts just like conventional ones. But, due to the specifics of starting their engine, even more palladium is required to make catalysts for hybrid cars. According to analysts, the hybrid car market will grow rapidly, and with it the demand for palladium.

The first chart shows the balance of the palladium market in recent years. The shortage occurred mainly due to the strict requirements in China and European countries aimed to fight the growing level of pollution. Such measures have led to the situation where each automobile requires 30% more palladium than before. And China is the major car manufacturer in the world. To cover the resulting shortage in the market, the funds began to sell their reserves. According to analysts’ forecasts, the balance of supply and demand in the palladium market should have been formed already in 2021.

As can be understood, the palladium market is very fragile. Any large-scale changes will immediately be reflected in palladium prices.

In the middle of February, heavy flooding occurred at the two main Nornickel (OTCPK:NILSY) mines (Taimyrsky and Oktyabrsky). This incident has already had a strong impact on palladium prices; however, the situation is far from recovering. Nornickel has already announced that, in 2021, the Company’s palladium production will be reduced by 20%, which means that the total global supply of the metal will fall by 8%. Judging by the fact that the Company has already postponed the recovery period several times, the situation when the mines will be restored throughout 2021 should be considered. In this case, the palladium market may shrink by 20% in a year. Below is an infographic of the current situation at the Taimyrsky and Oktyabrsky mines. The circles outline the most flooded areas.

Pressure on palladium may also be exerted by the rapid recovery of the automotive industry, which, as already mentioned, is the major consumer of the precious metal. The acceleration of vaccination, the lifting of restrictions, as well as the beginning of the holiday season – all these factors will have a positive impact on the production of cars, and therefore on palladium.

As a result, the situation at Nornickel’s mines, together with the growing demand from the automotive industry, will lead to a shortage increase in the palladium market.In order to somehow cover this deficit, funds, in particular PALL, will have to sell their stocks again, which, without any doubt, will affect prices.

Prices Pause In Gold/Silver as Equities Do the Same

(Kitco News, Mon. April 12th, 2021) –Gold and silver prices are are not trading far from unchanged levels in early U.S. trading Monday, as the metals are pausing along with most global equity markets, as they await new fundamental inputs this week. June gold futures were last down $1.60 at $1,743.30 and May Comex silver was last down $0.05 at $25.275 an ounce. 

Global stock markets were mostly lower overnight. U.S. stock indexes are pointed toward weaker openings when the New York day session begins, on a routine corrective pullback from recent gains that put the indexes at record highs last week.

Markets are not paying much attention to Federal Reserve Chairman Jerome Powell’s comments on the “60 Minutes” TV show Sunday evening, in which has reiterated the U.S. central bank will continue to support the economy until its fully recovered from the pandemic. He said it will “be a while” before the Fed raises interest rates.

Middle East tensions have up-ticked early this week on reports that a major uranium-enrichment facility in Iran was hit by a damaging cyberattack, likely coming from Israel. Major damage was reported.

In another sign of rising and possibly problematic price inflation from the world’s major economies, reports say China is considering implementing price controls due to rising commodity prices. Reports also say China’s central bank wants to tighten lending standards.

The key outside markets today see the U.S. dollar index slightly down. Nymex crude oil prices are firmer and trading around $60.00 a barrel. Meantime, the yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.65%.

There is no major U.S. economic data due for release Monday but the pace picks up Tuesday, including the consumer price index report for March.

Technically, the June gold futures bears have the overall near-term technical advantage. However, a price downtrend on the daily chart has stalled out and more price gains in the near term would confirm a bullish double-bottom reversal pattern that would be another chart clue that a market bottom is in place. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at $1,750.00 and then at last week’s high of $1,759.40. First support is seen at $1,730.00 and then at last week’s low of $1,721.60.

May silver futures bears have the overall near-term technical advantage. Prices are in a nine-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $26.74 an ounce. The next downside price objective for the bears is closing prices below solid support at the March low of $23.74. First resistance is seen at last week’s high of $25.675 and then at $26.00. Next support is seen at $25.00 and then at this week’s low of $24.66.

Posted by :

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com