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Palladium Market Retains Most Bullish Setup


With gap up new high in April gold, strength in physical commodities, ongoing fighting in Ukraine and a 5th straight day of gold ETF inflows (last week gold ETF holdings increased by 1.3 million ounces) and finally many traders expecting only a 25-basis point rate hike from the US, the bull camp has solid control. In fact, gold ETF holdings are now 3.8% higher on the year and we suspect surging prices will bring on even more consistent inflows into gold ETF holdings. To start the week, the gold market appears to be capable of rallying in the face of a surging US dollar, calls for a 50-basis point rate hike in the US later this month and from the threat of Russian gold sales on the world market. However, for Russia to sell significant quantities of gold will be very problematic as buyers and clearinghouses are unlikely to accept the supply. With May silver breaking out to the highest levels since August of last year, the silver market appears to be tightening its correlation with gold and palladium.


The palladium market retains the “most bullish” fundamental set up of the precious metal markets, with lost Russian supply nearly impossible to quantify its impact on prices. In fact, palladium ETFs last Friday added 7,163 ounces, they increased their holdings on the week by 33,773 ounces and the holdings are now 5.6% higher year-to-date. According to UBS the airspace closure has disrupted the flow of physical palladium with Russia accounting for 40% of all global mined palladium supply and that is certainly justification for new all-time highs. The rally in palladium prices has become so significant that the platinum market is now being “pulled up” by palladium. While the substitution of platinum for palladium has been anticipated for the last 2 years, we suspect speculative futures buying will have a greater near-term impact than increased substitution demand.


While we are still suspect with the copper market’s fundamental justification for the ongoing upside explosion, there are supply concerns and the most significant inflationary environment in 50 years. Certainly, reduced Chilean and Russian supply creates a powerful classic bull condition on its own, but the inflation kicker is apparently very powerful on its own. The copper market was unconcerned about another weekly Shanghai copper stocks build last week, and the market also has not had a significant focus on China which overnight posted softer than expected trade data.

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