PALLADIUM TODAY – Prices consolidate in bullish wedge

Analysis

• Palladium is consolidating recent gains and appears to be doing so in a descending wedge pattern; these patterns tend to be bullish.
• The rally had recovered more than half of the losses seen since the 2014 highs. The 50% and 61.8% Fibos are at $681 and $736 respectively while the October high was at $724 – the recent high was $747.50.
• The next resistance area starts around $800.
• The stochastics have started to climb out of the low ground, which looks constructive.
• The potential small H&S formation, which had a neckline at $667 and which was breached intraday, does not seem to have triggered follow-through selling – there has been no recent close below $677.
• The top of the wedge is at $686 – a move up through there would look bullish.

Macro factors

The pullback in prices seems to be profit-taking; given the gains since the June low, this is not surprising. The gross long fund position on Nymex climbed to 22,727 contracts on August 9 from a low of 12,824 contracts late in May. It has since started to slip on long liquidation was was last at 20,052 contracts. Short-selling picked up in early August – it reached 7,187 contracts on August 2 but it has since fallen to 6,254.

ETF investors have also been taking profits. Holdings stand at 2.09 million ounces, down from a recent high of 2.24 million ounces in mid-July.

Given the extent of the gains, it seems likely that the market expects some industrial action over wage negotiations in South Africa’s PGM industry; some may already be priced in. The sluggish South African economy, however, is forcing employers to drive hard bargains. After a three-week strike in the petrol sector, the union accepted a seven-percent wage rise. According to the Chamber of Mines, the mining sector has lost 47,000 jobs since 2012 and more are at risk. Having won wage increases in the past and having seen the loss of employment that rising wages have caused, perhaps unions will ultimately lower their demands rather than risk further job losses. If a strike is called as a show of strength and prices run up, it may well present a selling/hedging opportunity. But with palladium and platinum prices up 52 percent and 36 percent respectively from the lows, unions may feel producers have more margin to increase wages.