Palladium price has been in a tight range in the past few weeks, even as the automobile market rebounds and supply issues persist. The precious and industrial metal is trading at $2,340, which is about 20% below its all-time high of $2,873.

Palladium in a tight range

Palladium is an important metal used as a catalytic converter, mostly in gasoline-powered cars. The metal belongs to a class known as platinum group metals (PGMs) and is mostly mined in Russia, South Africa, Canada, and the United States.

In the past few years, following the Volkswagen diesel scandal, palladium has been under high demand and low supply. The price has jumped by more than 416% since December 2015, making it the most expensive precious metal in the world. It is more than $300 more expensive than gold. 

This performance is mostly because automakers are facing tough regulatory pressure to ensure that their cars have the least emissions. At the same time, palladium has been in short supply for more than a decade.

And this trend is likely to continue. In their most recent earnings releases, companies like General Motors, BMW, and Volkswagen said that they had started seeing robust demand for their products. Most of this demand is from China, the fastest-growing market for cars. 

At the same time, Johnson Matthey, a UK-based company that is also a leading manufacturer of catalytic converters, lamented that supply for the most important PGMs would have difficulties catching up with demand.

While this announcement had a positive impact on the price of PGMs, platinum has done better. This year alone, the metal has gained by about 17%, while palladium has declined by more than 1%. 

Analysts bullish on palladium

Still, some analysts believe that palladium prices will bounce back later this year. Those at JP Morgan believe that we are currently in the fifth commodity supercycle that is driven by the rising oil prices. 

In a recent note, analysts at Citi said that the price could bounce back to a record $3,000. They pointed to the growing supply deficit and a robust auto industry helped by the massive stimulus. 

In the United States, Congress is deliberating on a new $1.9 trillion stimulus in addition to the $900 billion that was passed in January. After this, there are rumors that Joe Biden plans to spend trillions of dollars on an infrastructure program. Other countries are also investing heavily in these stimulus programs.

Further, the analysts believe that only a small portion of platinum will be used to substitute palladium in the manufacture of converters. In their approximation, they pegged the range to between 5% and 10%. 

Meanwhile, the performance of the US dollar is also likely to have an impact on the price of palladium. The dollar index (DXY) has dropped by more than 12% in the past few months, and there is a possibility that the trend will continue. For one, the Federal Reserve has committed to maintaining the low interest rates even if inflation rises to 2%. A weaker dollar is said to be positive for palladium prices.

Palladium technical forecast

The daily chart shows that the palladium price found strong resistance at the $2,515 level. It also seems to be forming an ascending triangle pattern while the current price is at the same level as the 25-day and 50-day exponential moving averages. Therefore, while the price could break out in either direction, the triangle patterns point to a bullish breakout. If this happens, the next key level to watch will be $2,600.

Palladium technical forecast