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Julius Baer's Menke Bearish On Palladium

Carsten Menke, Commodities Research Analyst, Julius Baer, had this to say after the UK reported falling car sales for the first time in 6 years.

"Prevailing bullish sentiment and the encouraging technical trend have pushed palladium prices to record highs. We believe this is at odds with a slowdown in global car sales growth. Related headlines should eventually cool sentiment, trigger profit-taking and lead to a price correction.

Except for some of the niche metal markets, palladium was the best performer of 2017. Prices have continued to climb in the early days of 2018 and are now close to the old record high of USD 1,125 per ounce reached in 2001. This does not come as a big surprise anymore, considering the prevailing bullish sentiment in the futures market and the encouraging technical trend, both on an absolute basis as well as relative to its sister-metal platinum. Long positions in palladium futures held by speculative traders such as hedge funds are at multi-year highs while short positions are hovering around multi-year lows. Yet we believe this bullishness is at odds with a slowdown in global car sales growth. Last year, US car sales were down for the first time since the Great Recession. Despite the positive economic backdrop, a rebound is unlikely in our view with the economy at full employment and the car market saturated. Meanwhile, sales growth in Europe slowed considerably despite rising incentives while in China sales were sluggish for most of last year. As sales tax discounts were fully removed at the beginning of this year, the Chinese car market is due for a reality check. Although this slowdown should not weigh too much on autocatalyst demand, the related headlines should still be sufficient to cool bullish sentiment in the futures market, trigger profit-taking and leading to a correction in palladium prices. While short-term price risks are still skewed to the upside, we remain bearish on a medium-term horizon."