PALLADIUM TODAY – ETF disinvestment weighs while prices consolidate

Analysis

• The daily chart is set up for a potential run higher, possibly to retest the $735 region or even higher, triggering stops before the next directional move kicks in.
• Support is found at $670 as well as the lower range of the daily BB.
• The raily RSI is still holding above the median line and has the potential to move higher.
• As well, the stochastic lines are at the lower end of the range but, if buying interest picks up, the fast line could cross higher.
• We see palladium prices consolidating recent gains. Perhaps the metal will test key technical support before another attempt higher. But this remains highly speculative at this stage; we will re-assess.   

Macro drivers

For the second week running, Nymex funds manager reduced their long exposure while shorts continue to cover. The net long fund position (NLFP) edged lower to 14,890 contracts as of August 23. Overall sentiment remains mildly bullish – there was short covering of 590 contracts while longs only liquidated 923 contracts.

Recent liquidation by longs does not suggest panic selling. If dip-buying resumes, longs have rooms to add exposure. As well, we cannot rule out the potential for more short-covering since gross shorts are still relatively high at 5,747 contracts. If palladium prices continue higher, short sellers may come under strong pressure to reduce their positions further. The gross short position could fall, perhaps targeting the June 2014 low of 2,630 contracts.

ETF disinvestment continues – net palladium holdings reached a 2016 low of 2,097,266 ounces as of August 29 and are now near April 2014 lows. The continuing probe of South Africa finance minister Pravin Gordhan has weakened the rand, boosting palladium price denominated in the South African currency to a new high.