Palladium: A White -- Not Yellow -- Metal Play

Palladium prices surged today trading higher by 2.67% as of this post. Thousands of mine workers at Anglo American Platinum Ltd., the world’s largest producer of the metals are on strike. The workers went on strike at two mines in South Africa having refused to go underground. South Africa accounts for 73% of the global platinum and approximately 36% of the world’s palladium. Union and labor disputes have been ongoing for the last year and until new agreements can be established this could be extremely bullish. These events have already been factored into the price so we will need further unrest and/or disputes to see additional upside.

Bullish Catalyst
To date, unrest and labor disputes have served as a bullish catalyst lifting other metals in the complex. All metals appear to be set for a rebound as this rising tide should lift all boats. This in combination with a technical correction and short covering bounce should get metals shining once again. If investors need additional rationale bargain hunting and safe-haven demand has caused this beaten down sector to attract buyers.

Now for the trade

Since putting in a bottom on 6/27 at $629.40, futures have appreciated 10.5% lifting above the 38.2% Fibonacci level and a trade above its 20-day MA (red line) for the first time since 6/13. I feel there is gas in the tank and anticipate a 61.8% retracement, lifting September futures back above $725 or an additional 4.3%. Because palladium is not as followed as some of the other majors, I deem it necessary to mention the contract size: at 100 ounces, every $1 move is a gain/loss of $100 per contract.

As long as futures stay above the horizontal red line in the chart above ($655/660), I remain friendly. Most of the open interest in September call options comes in above $700/ounce with the most open interest at $750...maybe someone knows more than me, which would not be hard on this metal as I spend most of my time in this complex in gold or silver.