Precious metals have all sold off heavily in the last couple of weeks, with palladium in particular performing badly. While it is still one of the better performing commodities in the year to date, it has noticeably underperformed platinum, with the pd:pt ratio now comfortably above 2.
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I wrote here, a big problem for palladium has been that there hasn't been much of a divergence of views amongst speculative investors, which have been uniformly bullish. This is not necessarily a bad thing from a long term perspective, but it has been difficult to generate further long interest with a lack of fresh price catalysts.
In contrast, platinum has seen a significant amount of short covering, which has been a theme amongst other commodities in the last month or so.
In the last few months there really hasn't been any fresh news to tip investors further into further exposure to palladium. ETF holdings have been flat since a new ETF was introduced earlier in the year. This is in contrast to platinum, which has seen huge inflows into a new South African based fund.
But while there hasn't been any fresh direction for punters, it still seems that the physical balance remains as compelling as it did when prices were quite a bit higher. Chinese auto sales have been strong in the last few months, with activity in the year to date outstripping expectations at close to 12%YoY.
US auto sales have also been vibrant, particularly in the last few months. Total vehicle sales are tracking at ~11%YoY in August and 8.6%YoY YTD.
The mine supply side also appears to be tracking at around expectations in 1H13. There has been some disruptions, with Lonmin in particular suffering from a furnace outage. All in all we are aiming for small growth following a larger decline last year.
So it doesn't appear that the case for palladium has become any less compelling. But there hasn't been enough fresh news to prompt fresh interest.
But there is good reason to favour palladium over platinum now that interest in platinum is more balanced. Platinum is likely to be weighed on by gold movements, which may struggle with a diplomatic solution to Syria from the US and Fed tapering, both of which shouldn't affect palladium too much.
