PALLADIUM TODAY – Funds’ net long position at multi-year low

Analysis

• Palladium prices are oscillating sideways between support around $528 and resistance at $570. This sideways trading could be forming the right-hand shoulder of a H&S pattern (although because this is being seen so close to the bottom of the long-term downward trend we are not convinced it is one).
• The recent pullback stopped short of breaking the 61.8% Fibo although it did breach the April low.
• Our overall longer-term view is that prices have turned the corner from a 2014-January 2016 bear market into the start of a bull market. So for now we will view this pullback as a test of support. 
• The stochastics have turned higher, which suggests support is in place – it would take a move back above $570 to look bullish again.

Macro factors

Last week fund shorts sold a further 1,052 contracts while longs bought 87 contracts. The net long fund position is 1,918 contracts, down from a recent high of 7,195 contracts and the lowest we have on record – dating back to 2007. The gross long position at 15,251 contracts is relatively low – it peaked at 33,865 contracts in September 2014 (see charts).

ETF buying has picked up in recent days but it remains volatile and the funds do not look very engaged generally.

Prices could also get lift if strikes are called in South Africa where wage negotiation are under way. The National Union of Mineworkers (NUM) last week demanded a 20-percent pay increase for its workers at Amplats as an opening gambit in the talks. Separately, the NUM is considering a strike against Eskom – the utility’s even-percent wage offer was well below the NUM’s demand or 18 percent. Electricity outages could hit mining.