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January 16, 2020 12:00 PM, EST

Palladium, Used in Catalytic Converters, Soaring Again

Pallidium by Andrey Rudakov/Bloomberg News

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The palladium rally continues to defy all expectations.

The silvery-white precious metal, which is used in catalytic converters, has been on a tear this year that shows no signs of slowing down. It’s already notched a 20% gain for 2020. On Jan. 16, prices rallied as much as 5.5% and touched $2,390 an ounce.

The gains are surprising even to the most seasoned market watchers, who say there’s little chance that tight supply conditions will ease. South Africa, a major miner, reported a sharp drop in platinum-group metal production in November. Adding to the bullish mood was the U.S.-China trade truce, and record car sales in Europe last month even though they are unlikely to be repeated.

“The dynamics are so strong. Nobody can tell me that this is just fundamentals,” said Commerzbank AG analyst Carsten Fritsch. “This is already becoming a bubble.”

Pallidium graph

Palladium has added over 70% in the past year, fueled by a combination of tight supply conditions and strong demand as stricter emissions targets force carmakers to use more of the metal in autocatalysts.

On Jan. 16, spot prices jumped by more than $120 an ounce, which is the biggest daily move in dollar terms on record. The metal traded up 5% at $2,378.77 by midday in London.

Still, palladium’s technicals are stretched, and some analysts expect a sharp and brief retreat. The metal’s 14-day relative strength index has held above 80 for seven days — the longest since 2016.

“It’s overbought but ignoring it,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone. There should be a sharp pullback at some point, she said.

Several market players meanwhile raised their palladium price forecasts for 2020, including HSBC Securities (USA) Inc. and UBS Group AG, confirming their bullish outlook for the metal amid a continuing supply deficit.

Mark Burton contributed to this report.

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