Palladium futures were slightly higher Thursday, on track to advance for a second session as traders reacted to Janet Yellen’s testimony to Congress.
On Wednesday, palladium and the precious metals got a boost after Janet Yellen communicated that the pace of future rate hikes would be “gradual”. While rate hikes should be dollar supportive, and this, in turn, should pressure palladium, rate hikes are already expected and therefore already priced into palladium. What investors were concerned about heading into Yellen’s two-day speech was if she would indicate more aggressive rate hikes. Her “gradual” comment eased these concerns.
Also, Yellen was fairly upbeat about the health of the US economy – and with palladium an industrial metal this is positive for demand expectations.
Of the precious metals, palladium has been the star performer over the past months. The metal has surged to multi-year highs whereas the other precious metals have run into resistance. Palladium is quickly approaching platinum in terms of value.
The precious metals complex is taking a hit from higher interest rates, which dampen the appeal of non-yield bearing assets while a seasonal lull is also contributing to the complex’s losses. But, even though the precious complex is facing pressure, palladium prices are trading at multi-year highs.
Palladium prices are benefiting from improved demand expectations, while supply shortfalls are also contributing to the metal’s upside. Output from top producer Russia will fall 3% this year whereas world demand for 2017 is expected to exceed supply by 24.4 tons, according to Johnson Mathey.
However, not everyone agrees with palladium’s strength. In June, Commerzbank analysts said they saw “no justification” for the strong palladium price.