Palladium was comfortably above $900/oz Monday in London, with strong fundamentals -- including escalating tensions between Ukraine and Russia, the world's largest producer -- keeping the metal well bid and at levels not seen since 2001.
Following a break above $900 Friday, further buying has followed through at the start of the week, Credit Suisse head of global commodities research Tom Kendall said.
Palladium fixed in London on Monday morning at $909/oz. The metal fixed on the morning of January 2 at $723/oz.
"We have seen spot trading up through $910. The move has been helped by the prospect of further economic sanctions against Russia, though we doubt there will be any practical impact on Norilsk Nickel's ability to produce, export or sell palladium," Kendall said in an email to Platts.
Palladium is produced in Russia mainly as a byproduct of nickel mining, and Norilsk is the world's biggest palladium producer.
"The metal's upward momentum still looks strong. any further positive headlines -- whether geopolitical or related to August car sales data -- will have the potential to generate further speculative buying," Kendall said.
Mitsubishi strategist Jon Butler said that on Friday palladium registered its highest month-end close since January 2001.
"We anticipate profit-taking could take palladium down once month-end excitement dies down. However, palladium's strength on a fundamental and technical basis is not in doubt and the medium term trend remains upwards," Butler said in a weekly note to clients.
According to Mitsubishi data, August was the seventh consecutive month of gains for palladium, the best performance since July 2010 to January 2011.
"We remain of the view that palladium will record its largest annual deficit this year -- of at least 2 million ounces -- which should help to continue to underpin prices," Butler said.
Mitsui strategist David Jollie said: "The strong price performance is not overly surprising. However, we would question how much further these factors can lift palladium."
Jollie said the pace of buying of exchange traded fund metal has slowed in recent weeks "and we believe that the risk/reward balance for a long palladium investor has worsened. These factors should tend to offset any price positive factors."
Commerzbank analysts said the fact money managers have been "betting heavily on rising palladium prices for weeks now, their net long positions are only marginally below the record high achieved in April 2013".
UBS strategist Edel Tully laid out the data in a research note Monday.
"The NYMEX palladium book expanded for a second consecutive week to reach a fresh high of 3.059 million oz, albeit the increase in net longs was more modest at 27,300 oz, versus 467,900 oz the previous week. The change in positioning was due to a combination of longs adding to positions and shorts seeking cover," Tully said.
Palladium gross longs are at 99% of the all-time high, while gross shorts are at the lowest since December, UBS data showed.
"Last week we expressed concern about palladium's extended positioning, and the latest Commitment of Traders Report only adds to our nervousness," Tully said.
"Although longs have proven to be quite resilient thus far, the continued expansion in positioning increases palladium's vulnerability to the downside should a negative catalyst emerge up ahead."
