Last month, ETF Securities said palladium is among its top commodities picks for 2014, citing a large supply deficit, dwindling Russian stockpiles and increased Chinese and U.S. auto demand, so there is a fundamental story at play here as well. [ETF Securities 2014 Commodity Outlook]
Parets adds that palladium futures have tested resistance created by a downtrend line dating back to 2011 five or six times.
“In my experience, the more times that a level is tested, the higher the likelihood that it breaks. I think it happens soon and our confirmation would be when prices take out last year’s highs,” said Parets.
In addition to improving auto demand, there are other fundamental factors to bolster the technical case highlighted by Parets. The palladium market is widely expected to be in deficit again this year, a situation that could be exacerbated by the debut of a palladium ETF in South Africa. All of the palladium in that ETF must be produced in that country, as stipulated by regulators there.
Speaking of South Africa, the country is the world’s second-largest palladium producer. Any labor strife in the mining industry, something that has happened before, would likely boost palladium prices.
ETFS Physical Palladium Shares
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.