Palladium signals uptrend on rise in automobile sales
Palladium, which is a crucial constituent of auto catalysts in gasoline vehicles, lost about $370 in the past one year to touch a low of $451 in January 2016. Since then, the price of the palladium has recovered slightly to trade at about $560 on March 7, 2016. Most analysts anticipate a further rise in the price due to the following reasons.
Russia and South Africa respectively contribute 42% and 36% of the total palladium production in the world. Fundamentally, palladium is more of an industrial metal than a precious metal. Thus, an increase in the manufacturing activity supports a rise in the price of the metal.
In December 2015, the sale of automobiles increased 14% in Europe. Similarly, on a y-o-y basis, the China Association of Automobile Manufacturers also reported a 24% increase in the car sales. Beijing has also announced a tax cut to encourage vehicle purchases. All these factors continue to lend support to the price of palladium. Furthermore, the Volkswagen emission scandal is expected to weaken the demand for diesel cars and increase the interest of the people towards gasoline and electric cars. Such a scenario will boost the demand for palladium as it is an integral constituent of the Selective Catalytic Reduction technology. Additionally, stringent emission control rules will also increase the demand for palladium.
Investors Trading Academy – ITA
The palladium market is expected to see a deficit of about 700,000 ounces in the fiscal 2016. The supply is not expected to catch the demand until 2017. Considering the prospects of a sharp rise in the price, Russia’s Norilsk Nickel, the world’s largest producer of palladium, has set up a $2 billion fund to purchase physical palladium.
The market no longer expects another Fed rate hike before June 2016. Thus, precious metal prices have started appreciating. Only a further hike in the interest rate would make the US dollar more attractive to the investors, thereby leading to a decline in the price of precious metals. The HSBC analysts anticipate that the price of palladium will range between $555 and $720 in 2016. Thus, fundamentally, we can expect the price of palladium to increase in the coming weeks.
Technically, as shown in the image below, major support exists at 500 levels. Major resistance exists at 612 levels. The RSI indicator has formed a positive divergence with the price.
Thus, a binary options trader should purchase a call option contract with March end expiry. The suggested strike price for the call option contract is $600.
