Palladium looked set to extend its record-breaking rally even as investors mulled whether the metal has rallied too high, too fast.
Prices flipped to gains after initially falling almost 3 percent on Monday, despite technicals continuing to signal that a pull-back may be due. The metal reached a fresh all-time high of $2 548.20 as tight supply conditions show little signs of easing.
The metal’s surge is rooted in positive fundamentals, with production trailing demand as stricter emissions standards boost consumption by car-makers, and as uncertain power systems in South Africa worsen supply constraints.
Another factor is that producers don’t have the capacity to boost output easily in response to price increases because palladium is largely mined as a by-product.
The cost to borrow palladium has jumped to the highest in over a year.
Palladium is in a “real sweet spot” of recovering industrial production globally, improving demand due to strong car sales, and constrained mine supply, said Wayne Gordon, executive director for commodities and foreign exchange at UBS Global Wealth Management.
Also, the level of substitution has been less evident than expectations given its price relative to platinum, he said. — Bloomberg.