The price of Palladium continues to climb on supply concerns. Overnight, the spot price of Palladium broke thru the $1,342 level of resistance as more and more Hedge Fund managers joined the club.
What many people don’t realize is that to get the full benefit of this rally in Palladium you need to own the actual physical product. Why? Because the supply and demand issues are predominantly effecting the spot price.
Currently the spot price of Palladium is approximately $65 dollars over the most active month on the exchange, which is March. The tightening-of-supply event that the Palladium market is currently experiencing is called “backwardation.” In simple terms, this means that the March Futures contract is trading in value of about $65 below where the physical is being offered.
And as the supplies tighten, the backwardation or EFP to March can widen further. So if you buy a Palladium Futures contract or an ETF, you will not benefit in the same way you would if you owned the physical product.
I’m not saying you will not benefit from the increase in the price when buying a futures contract or ETF. It just means that as the physical supply tightens, the investors holding the physical product will have a more profound gain. There other significant aspects of this market to explain, including the fact that if you own the metal and don’t want to sell it you can lease the physical metal out.
Lease rates are through the roof. If you don’t want to buy the physical palladium outright and need the product, you can borrow the physical, but it will be very expensive to do so.
Also, if you are short future contracts when the spot month comes due, switching your position to the next active month or further can cost you an arm and a leg.
I have been getting a lot of questions from clients and reporters that publish our content, so I hope this explanation answers all of your questions.
How serious are the trade talks with China?
The clock is ticking away…I think it’s time President Trump and President Xi come together and resolve their differences, because as time goes on it will only become more and more difficult to come to an agreement.
President Trump and his full staff will be heading to Davos, Switzerland to attend the World Economic Forum, January 22nd-25th. The Forum is committed to improving the world’s economies by bringing together the foremost political and business leaders to discuss and shape global, regional and industry agendas.
What a fantastic backdrop it could be for an announcement that both countries have come to a trade agreement.
But there is one problem. Right now, President Xi of China is not planning to attend. What kind of message is that sending to the markets? This is the most important bilateral relationship in the world. It is essential that this trade disagreement does not escalate further because the impact on the global economy will be extremely negative.
In the next two weeks, many would like to hear of some progress being made before the conference begins. An announcement in Davos of significant progress in the talks will calm world markets. I believe this is essential before the rug is pulled out of the Global Equity Markets.
In my opinion, if no progress is made before the March 1st deadline, the markets will pick up on all this negativity and the Equity Market will take a huge hit.
THE DANGER TRADE
I can’t imagine that some positive news will not emerge before the March 1st deadline. It is too important for the world’s economies to have this disagreement continue much longer.
Here is my concern. Whatever the outcome, deal or no deal, I expect a significant move in the Equity Markets and in our Precious Metal prices.
It’s not like the old days when markets move on supply and demand issues. This is a totally new ballgame.
Volatility has become the word on the street. Algorithm programs are the real players in the markets. So, here is my take on what on what I expect will happen, my simple “play-by-play” of the action.
If a substantial agreement is met, Equity Markets will rally big time, because, for the time being, the U.S. economy is still in great shape. If you are a Gold investor, watch out below, I expect a significant decline in the price of Gold.
If no agreement is reached and the 25 percent tariffs are put in place, start shining
the physical Gold coins and bars you have in your possession (because they will become
more valuable) and hope that the your Equity portfolio is diversified enough to take a torpedo broadside.
For the ones who like to play the odds. I asked 19 Wall Street traders who trade different products for their take on the outcome of the negotiations.
Thirteen said that an agreement will be reached before the March 1st deadline. Five said it’s too complicated, so an agreement will not be reached. And one said, you must be kidding asking a question like that. I have no idea and won’t speculate.
So there you go. Either way, deal or no deal, buckle up and hold on tight .
Have a wonderful Wednesday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.