Palladium Pandemonium - Short Squeeze Sends Precious Metal Spreads Parabolic
By GCRU Gold News on Monday, June 12 2017, 01:58 - Permalink
Palladium has been gaining versus platinum for the past year. Why do we care about this spread? Well, palladium and platinum’s main use is in the fabrication of catalytic converters for automobiles.
Palladium is mainly used in gasoline engines, while platinum plays a larger role in diesel cars. The Volkswagen emissions scandal effectively killed diesel’s future in passenger vehicles, so maybe this palladium outperformance can be explained by the dramatic switch from diesel to gasoline.
Combine this extra demand with the fact that palladium is a small market that was already suffering from challenging global supply, you had the recipe for a squeeze.
When I was discussing palladium with Ari this morning, he wryly commented, “now that we have noticed the big curve inversion, the move is probably over.” That’s part of the reason I enjoy talking with him. Ari is probably even more cynical than me.
But I told him that this palladium move was a high standard deviation event. And I reminded him of one of my favourite lines. You know the problem with fading a 4 standard deviation move? It’s almost always right, but not before it becomes a 6 or 7 standard deviation move…
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P.S.: For those gold bugs out there, some day I envision this same inversion occurring in the gold futures market, and this palladium episode should be filed away in the playbook for what to expect.