Chart of the week: palladium will lose its lustre

Palladium, the silvery-white metal 30 times rarer than gold and used in catalytic converters, dentistry, electronics and jewellery, has gained 70% in a year. It now trades at about $1,530 per ounce. The rally has been driven by “three key pillars”, writes Ross Strachan of Capital Economics.

Firstly, a “large structural market deficit” has been eroding stockpiles. “Second, tightening automotive emissions legislation in China and Europe” is increasing demand. These two factors have fuelled the third – rising demand from investors, as shown by activity in the futures market. Yet “the scale and speed of the price rise has been overdone” and any escalation in the US-China trade could spell an end to the rally.
“Permanently including quantitative easing (QE) in central banks’ standard toolkit has transformed global finance and capitalism in ways not comprehensible at this juncture. The bond ‘vigilantes’ are extinct. This has provided central banks unprecedented latitude to discard convention and follow their every whim. It has also conveniently removed a major risk (spike in yields) for equities. But is has also opened the fiscal floodgates, where monetary policies ensure the accommodation of huge deficit spending at [very] low borrowing costs. QE and the resulting death of the vigilantes have also empowered the strongman leader to subvert central bank independence… Threatening… the head of a central bank for not cutting rates… is a non-issue for today’s bond market. Ditto massive deficits… No checks and balances. Markets have lost the capacity to self-adjust and correct.”
Doug Noland, Credit Bubble Bulletin

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