Palladium is one of the metals that have been highly suffering for those past 5 months. After a high posted early March this year above $571 an ounce, the price dropped to a recent low at $270. It is a 53% decline in less than 6 months.
The price came back to a level where it found a support line that does exist since April 2003 (point A on the long-term chart). It is a long-term support that was tested and validated also in 2005 (points B and C).
What happened recently to produce such volatility and such a price action?
Palladium fell below its intermediary support line, around $415, in the second fortnight of July (when it crossed below the red line on the chart) as the US Dollar gained against other currencies. As a result, it cut demand for the metal as inflation hedge.
Indeed, many investors buy metals priced in dollars to preserve value when the Greenback weakens.
Moreover, you may know that palladium (with platinum) is used in pollution-control devices in the car industry. The economic slowdown in the US has strongly hit the car-industry. The statistics data show that the car and light truck sales in the US, which is the biggest market in the world, have plunged to the lowest levels since 1993.
However, despite the bad economic conditions and the US Dollar strengthening, there are also in the Palladium market industrial-bargain seekers buying at the current low prices.
Technically, as the price hit a support level, there is a real potential for a rebound. In exactly 2 months, from June 19 to August 19, palladium price crushed down in a clear linear way, by 44% (between points A and B on the short-term chart). A correction of this move is more than likely.
Actually the rebound has already started. But a further price action on the upside is expected. The technical indicators have triggered clear bullish signals, as they show that the oversold configuration is over. The MACD and the RSI have bottomed, turned upward and crossed above their respective signal line. It opens the way to higher prices on the near-term.
In this scenario, the Fibonacci retracement levels of the recent 44% decline may be the immediate resistance levels for the current bounce back. The 38.2% ratio is set around $355 and the 50% ratio is set at $380. Currently the price is trading around $307.
