Palladium is showing signs of recovery after a recent sell-off, which could be a reversal of the metal's long-term trend.
Palladium has lost almost half its value since the start of the year to lows of $936 on the 10th of November. This decline has made it the worst-performing metal so far this year. The metal lost around 15% in the last week to that date alone, although it had held above $1090 for several weeks before.
The low in early November wiped out almost all of the metal's gains since 2018, leaving it more than 70% below the peak of $3000 in March 2022.
The last time palladium experienced a more sustained, albeit less prolonged, decline was in 2008, under pressure from the challenges of the global financial crisis.
However, since the beginning of last week, palladium has been rising daily, suggesting a return to sustainable demand. This reversal took place just above the critical pivot area above $900.
Palladium was kept from going above it in 2011 and 2014, and below it in 2018.
On the other hand, the current rally could prove to be as much of a bull trap as it was in March when a subsequent, more furious sell-off wiped out a 15% rise in six weeks.
Fundamentally, palladium is tied to the consumer cycle, and its performance this year looks like a disappointment in China's growth, but with the surprise of strong US consumption and a better-than-expected European performance in brackets.
Theoretically, this sets the stage for a slowdown next year, when high-interest rates weigh more heavily on consumer demand.
But palladium is so historically oversold that it can rally despite the negative macro picture.
The $1200 area is worth watching on the road to recovery. A decisive break above the previous lows would confirm the reversal and quickly send the price to test the $1400 level. A break above this level would signal that a new bullish trend has begun in palladium, not just a corrective bounce.
The FxPro Analyst Team