Palladium prices continue to move within the medium-term downtrend. On Friday, the price overcame the level of local lows of December 1640 and rushed even lower. The bears have one last target left, the low of December 2021, just below 1530. However, palladium is attempting a pullback today. Will it be the beginning of a full-blown upside wave, or there will be a new plunge very soon?
Analysts say the main reason for the decline in palladium prices is a demand drop in the automotive industry. Palladium was the most important factor in reducing automobile emissions, which created a steadily growing demand for this metal. But events in recent years have reversed that trend.
The surge in demand combined with a shortage of supply drove up prices, making palladium nearly twice as expensive as gold and three times expensive than platinum. Car manufacturers either stopped using palladium (in the case of electric cars) or replaced it with significantly cheaper platinum (for cars with internal combustion engines).
With the automotive industry accounting for almost 90% of palladium demand, palladium prices are feeling the pain of lower demand for the metal, having dropped 30% in the past four months. Macquarie's analysts predict the average palladium price will be just $1150 an ounce by 2027, much below the current, already markedly falling prices.
Considering the scale of the previous decline, palladium has the potential to bounce up to the level of 1700, where a strong resistance will be the downtrend line. Therefore, cautious traders may wait for the current bounce to end just at 1700. The range of 1660-1670 will also be rich for the riskier market participants to open short positions.
The following version of trading strategy might be offered:
1) Sell palladium on the rise to the level of 1700. Take profit – 1640. Stop loss – 1730.
2) Sell palladium in the range of 1660-1670. Take profit – 1600. Stop loss – 1700.
Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
