By Gabriel Andre
Whereas Gold prices usually soar when everything’s going bad and when money supply is rising, other precious metals (silver, palladium and platinum) prices are not driven the same way. They depend more on the industrial demand which is linked to the global economic growth rather than psychological and monetary factors.
Since the historical high posted in last March, Palladium price action has plunged by 62% as it fell from $2,327 to $881 an ounce. This broad correction has several reasons:
The crisis obliges the hedge funds and all the speculative investors to close their open positions whatever the price. Those funds bought stocks and commodities with credit lines. It means that when prices pull back strongly, the margin calls get bigger. The managers and traders are then forced to sell in order to cope with their needs in liquidities. This deleveraging phenomenon creates a vicious circle that drives prices deeply low.
The global economic slowdown of course: after the US and Europe, the emerging countries suffer more and more and could enter into recession. The equity markets plunge and the demand is slowing everywhere (energy, metals…).
Most important, the car sales statistics are terrible. The slowing automobile sector which is the biggest consumer of platinum for exhaust pipes is the main reason for lower prices. In the US, the market experiences a very difficult period.
Between September 2007 and September 2008, car sales fell by 26.6%. In Europe too, the market is also on a bad trend.
As a result, the market is likely to be strongly in excess at the end of this year (a surplus of 120,000 ounces is expected) while at the end of 2007 there was a deficit of 210,000 ounces: this is a clear trend reversal!
Technically platinum prices haven continuously falling since early July, while they experienced a consolidation phase between March and late June. The prices are currently at the same levels of July 2004.
A weekly chart shows that the current bear trend has retraced a large part of the rally started in 2001 and that there is an intermediary support at $750 before the major support line around $630. Last Friday the closing price settled at $881. Those supports levels correspond to previous peaks (posted in 2001 and 2003) that became new lows.
The weekly Commodity Channel Index and MACD are still clearly bearish. That’s why, given the current economic conditions and the technical indicators, a further momentum on the downside is expected.
