The dollar palladium price hit an all-time high during intraday trade Tuesday, and as such was hit by some modest profit-taking Wednesday as the market digested the move.
"Although the price increase of the past two days was accompanied by a high trading volume -- 60% more futures were traded [Tuesday] than the average so far this year -- the palladium market is currently very tight and very illiquid," Commerzbank said in its daily research.
Palladium has been the story of the past two years in the precious/industrial space, with physical market tightness an ongoing theme. Some argue that the upside is all down to a squeeze by one player who is holding large quantities of physical and preventing leasing of the autocatalytic metal.
"Lease rates also remain very high, which likewise underlines the tightness on the market. ETFs have already been taking advantage of the high lease rates for some time, lending the material they hold," Commerzbank said.
One fund manager told S&P Global Platts Tuesday that he had just closed out a long position he took at $900/oz, giving a profit per ounce of around $150. However, he remained cautious of playing the short side just yet.
Nevertheless, what goes up, must come down and as such some profit is currently being locked in. Palladium was spot bid in London as of 0910 GMT at $1,129/oz.
"Heightened concerns about tightening supplies, stoked by potential disruptions in Russia have been the driver in recent days," ANZ told clients. Russia is the world's largest primary and secondary palladium producer.
According to broker SP Angel, hedge funds had been building their bullish bets on the metal. "In the week ended October 16, money managers boosted their net-long position for an eighth straight week, the longest streak since January 2013. Wagers on the metal's price advance outnumbered bearish bets by 10,122 futures and options, the most since mid-June, Commodity Futures Trading Commission data released October 19 showed," the broker said.
Commerzbank added that, "as a result of palladium's strong upswing, the price gap between palladium and platinum has widened to over $320/oz. This could prompt autocatalyst manufacturers to consider using more platinum in their autocatalysts again after all."
