Palladium leaves gold in its dust

Palladium leaves gold in its dust

Commodities 6 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The uptrend in gold that was established after hitting a low point in August has so far been prevented from extending further beyond $1,240/oz while palladium prices have entered a pronounced rally.


Gold has remained rangebound for the past five months, but prices are once again testing resistance as some of the underlying drivers have provided renewed support. Palladium, meanwhile, has raced higher on a surging combination of strong physical and speculative demand. 

The 33% collapse in crude oil prices since early October has helped remove some of the inflationary pressure and with that, the need for much higher US short-term rates. Last week, Federal Reserve chair Jerome Powell said that the Fed is getting closer to what it perceives as being a neutral rate, i.e. not too tight and not too easy.

The reaction to this has been a continued reduction in the market's expectation for future rate hikes. The chart below shows how the 30-day Fed Funds futures curve has shifted lower by a full rate move during the past month.
CPI and WTI, Fed Funds futures
Source: Saxo Bank
Additional support for gold has emerged through the renewed strength in bonds and not least the accelerated flattening of the yield curve – something that in the past has signaled increased risk of an economic slowdown in the US.

The two- to 10-year spread, which is the most closely watched as a potential indicator of an emerging recession, has flattened to just 12 basis points, primarily driven by a drop in US 10-year yields to 2.91%, a three-month low. Finally, the weaker dollar seen against the Chinese yuan following the weekend meeting in Buenos Aires between Trump and China’s Xi Jinping has provided an additional source of support, particularly given the high correlation seen between gold and yuan in recent months. 
Yields, spot gold, yuan
The uptrend in gold that was established after hitting a low point in August has so far been prevented from extending further beyond $1,240/oz. This is due in major point to a continued bearish stance from hedge funds who have maintained a net-short since July. At this stage, the $1,240/oz area is being defended but given the aforementioned changes we see an increased risk of a breakout to the upside.

Hedge funds held a net-short of 52,000 lots in the week to November and reversing that back to a long position, outside market developments permitting, could help trigger an extension towards the next levels of resistance at $1,262/oz. and potentially as high as $1,286/oz.
XAUUSD
Source: Saxo Bank
While gold has been languishing, the minor metal of palladium has broken all shackles and continued to surge higher on a combination of robust fundamentals and strong price momentum. After testing parity to gold on Tuesday it has surged higher today and now trades at a premium to gold for the first time in 16 years. 

In order to understand this development, we need to take a look at its sister metal: platinum. Both metals are used in catalytic converters to reduced the emission of harmful gases from cars and trucks. While platinum is best used in diesel engines, palladium is the preferred metal in gasoline engines. Demand for palladium rising strongly as consumers turn away from diesel towards gasoline-powered cars. 

With palladium already in scarce supply, the combination of strong physical and speculative demand has so far taken it higher by 14% year-to-date, this on top of a 60% rise last year. Next year the physical market is expected to be even tighter than 2018 with a supply being steady while demand from the automotive sector will continue to grow. 
Palladium
Source: Saxo Bank

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.