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Palladium draws fresh speculative interest as record price surge continues

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Palladium draws fresh speculative interest as record price surge continues

London — Palladium caught yet another bid this week, once again hitting fresh highs Thursday of around $1,180/oz, and only just shy of that during Friday trade, as speculators bought into already tight physical market conditions, sources said.

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One trader said to S&P Global Platts that palladium is the one thing that keeps him up at night. He said he believes that the metal has a lot more upside, but having already gained around 40% since August alone, he is cautious of getting too long.

Palladium -- in short supply since 2012 -- was given a boost last year by the move away from diesel cars. The metal is primarily used in petrol vehicle autocatalysts to reduce emissions.

Its price came within $30 of the gold price for a time Thursday, something analysts at Commerzbank said they would not have believed possible just a few months ago.

The bank attributed the price surge to buying on the futures market, with Thursday's trading volume double the average of recent months. The market hopes some clarification on the supply situation may emerge from an investor day to be held Monday in London by the world's top producer, Russia's Norilsk. The bulk of the world's primary palladium comes from the world's top two producing nations, Russia and South Africa.

Both platinum and palladium were the hot topics at the recent London Bullion Market Association annual gathering in Boston. Usually PGMs are sidelined by talk of gold, yet this year PGM traders were happy to take center stage. "I think it was positive for the PGM market to be fair. Most people were talking about the palladium price, rather than gold," said one senior trader.

Up until around the middle of 2018 the metal has been in vogue with those who understand the small and relatively illiquid market, but in recent months the story has gone mainstream with hedge funds jumping in as the physical market really tightens.

"The tightness in supply has created a lucrative business of lending the metal, spurring withdrawals from exchange-traded funds. Consumers of the metal [mainly car manufacturers] have turned to the lease market for supply. Hedge fund attention is also rising, with money managers boosting their net-long position in palladium futures and options to the highest since March," brokerage SP Angel told clients Friday.

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Palladium was spot bid at $1,167/oz as of 1405 GMT. "The PGM king palladium continues to print new all-time highs as momentum indicators fire long signals on all cylinders," TD Securities' Bart Melek said in a research note.

Citi analyst Max Layton was incredibly bullish the metal. "This tightness has seen palladium disconnect from deteriorating macroeconomic growth sentiment over the year to date, and seen correlations between palladium and other cyclically exposed assets fall to their lowest levels in a decade," he said, predicting the price could reach $1,300-$1,500/oz.

One banker said that he had been hearing talk of $2,000/oz. "It seems to be overdone, but who knows? The metal just keeps going higher," he said.

--Ben Kilbey, ben.kilbey@spglobal.com

--Edited by Alisdair Bowles, newsdesk@spglobal.com