Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Silver Lining of the 'Violent, Stunning, Historic Collapse of Palladium' and How to Profit from It

Commodities / Palladium Jan 28, 2017 - 07:02 PM GMT

By: The_Gold_Report

Commodities

Palladium took a dive this week, and Chen Lin, author of the popular newsletter What Is Chen Buying, What Is Chen Selling?, explains what happened and how investors can profit from the drop.

This is President Trump's first week in office and a huge week for the stock market. However, not many noticed the palladium futures market experienced the "violent, stunning, historic collapse," according to the well-known market commentator Dennis Gartman, the "commodity king." Let's drill down to exactly what happened.


On Dec. 23, 2016, under tremendous public pressure, the Chinese government announced that by July 1, 2020, all vehicles in the Chinese market will have to comply to the tough China VI/China 6 standard, basically equivalent to the current U.S. and E.U. standards. It was barely noticed in the West because of the Christmas holiday. But it was a big one in China, especially in the Chinese social media. I could hear the cheers of Chinese citizens all the way in the U.S.!

China is facing a severe pollution problem, especially in the northern regions. There are studies pointing to car emission as one of the major sources of pollution. However, the Chinese government has been reluctant to implement tougher car emission standards. One of the key reasons, I was told by various Chinese sources, is that the world will not have enough palladium supply for China if China implements U.S. or E.U. style emission standards!

Let's look at the supply demands in the palladium market (see chart above). You can see mining supply (primary supply) has been down for many years thanks to the underinvestment in South Africa, the main supplier of platinum and palladium.

As a matter of fact, if there was not heavy ETF redemption in the past two years, palladium couldn't have reached the supply-demand balance!

We saw heavy ETF redemptions in the past two years to meet the strong demand. The net ETF holdings were almost cut in half from the 3 million ounce (3 Moz) peak in 2014 to close to 1.5 Moz by the end of 2016.

How about the Russian stockpile of palladium? It is gone. According to the recent Scotia Bank report on palladium, "Between 2004 and 2010, Russian sales from stockpiles averaged 1.2 Moz per annum. They dropped to 0.78 Moz in 2011, 0.26 Moz in 2012 and 0.10 Moz in 2013 and appear to have since dried up, with the view being that surplus stocks have been depleted."

Here is the key question: If Chinese demand of palladium picks up in the next few years, where will the extra palladium come from?

The Chinese automobile industry consumed about 2 Moz of palladium in 2016, out of an estimated 9.5 Moz in global total supplies, up about 20% from 2015 and has been going up 10–20% annually for the past 10 years, according to the Scotia report. If we assume 10% growth in the next four years, China will demand about 3 Moz of palladium in 2020. With the recent new requirements in China, we can predict that 3 Moz by 2020 may be very conservative. What if China demands 3.5 Moz per year or 4 Moz per year? ETF inventory is already down to 1.5 Moz after 600–700 Koz per year outflow. This is not sustainable. Where do you find the extra palladium? That's why I see a potential huge spike in the palladium price similar to what we experienced in 2001, when palladium was trading at a huge premium to platinum and gold.

Here is a potential explanation of what happened in the palladium market recently: During December of 2016, a group of Chinese traders, likely very knowledgeable of the Chinese government's forthcoming regulation, accumulated a large position of palladium for $650–700/oz. When the news hit the wire, palladium exploded all the way to $800/oz earlier this week. This weekend is the Chinese New Year and the Chinese market will be closed for a week. Some traders wished to lock in profits ahead of the holiday and $800 is a historically strong resistance for palladium. This triggered an avalanche of selling and most stop orders were taken out because traders had so much profit to protect.

What's going to happen next? I view this complete washout as an excellent opportunity for investors to accumulate palladium positions. As I discussed, I believe the chance of a spike in the palladium price in the next few years is very high. You can hold a leverage future position or physical ETFs like ETFS Physical Palladium Shares (PALL) and Sprott Physical Platinum and Palladium Trust (SPPP). Remember, if the palladium shortage happens, the futures market may or may not be able to deliver the physical metal, so a physical ETF or physical metal is preferred.

I also invested in the miners. Platinum Group Metals Ltd. (PTM:TSX; PLG:NYSE.MKT) did a raise recently and the stock is close to a 52-week low. The company is ramping up the Maseve mine in South Africa and is scheduled to reach commercial production in a few months, so the timing is perfect. It also owns a giant mine called Waterberg in South Africa. I hope when the company reaches cash flow positive, the market will wake up to its potential, just like what happened to Ivanhoe Mines Ltd. (IVN:TSX) in the past year, which owns a big PGM deposit not far from PLG.

In conclusion, if you believe in the Trump rally, believe in the recent rally in base metals, then palladium probably has the best supply-demand picture of any commodity: copper, zinc, oil, corn, uranium, you name it. The supply deficit projected in 2020 is likely 20% or more. We need a lot of new mines to be built in a hurry! I believe the recent big selloff in palladium creates a great opportunity for investors who are seeking to increase palladium and platinum (which can be substituted for palladium) exposure. When palladium makes these kinds of historic moves, margin calls usually follow in the next few days. It can be very volatile. However, a huge washout usually creates a solid bottom to move higher. I call investors' attention to this special situation and the potential to profit from it.

Chen Lin is a full time manager of his family assets. He started to write the stock newsletter What Is Chen Buying? What Is Chen Selling?, in 2009 he after successfully navigated his family portfolio during the 2008 financial crisis. For more information on Lin, visit his website at chenpicks.com.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Chen Lin: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Platinum Group Metals Ltd. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

Charts provided by Chen Lin.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules