(Bloomberg) --
Palladium’s extraordinary rally is setting off alarm bells after another sizzling week of advances set a series of records.
The silvery-white precious metal used in catalytic converters has been on a tear this year that shows no signs of slowing. On Thursday it hit a record $2,395.71 an ounce, and it’s up 11% this week, the most since January 2017.
The gains are surprising even seasoned market watchers, who say there’s little chance that tight supply conditions will ease. South Africa, a major miner, reported a sharp drop in platinum-group metal production in November. Adding to the bullish mood was the U.S.-China trade truce, and record car sales in Europe last month even though they are unlikely to be repeated.
“The dynamics are so strong. Nobody can tell me that this is just fundamentals,” said Commerzbank AG analyst Carsten Fritsch. “This is already becoming a bubble.”
Palladium’s rise also has been fueled by concern over dwindling supplies as demand surges following stricter emissions standards in China, according to Australia & New Zealand Banking Group Ltd. The metal is trading at twice the premium over platinum, which may motivate carmakers to use it as a substitute and could see prices catching up with palladium, the bank said.
“A modest recovery in the auto sector along with tighter emissions regulations should lend support to PGMs,” ANZ strategists Daniel Hynes and Soni Kumari said in a report Jan. 17. Still, a “price setback is possible for palladium following its impressive rally this year.”
On Friday, spot prices traded 1.4% higher at $2,346.52 an ounce at 5:55 a.m. in London. The metal is up 21% this year after skyrocketing 54% in 2019.
Sister metal platinum climbed 1% to $1,014.87 an ounce, after touching $1,041.71 on Thursday, the highest level in nearly three years. Gold rose 0.2% and silver advanced 0.6%.
Still, palladium’s technicals are stretched and some analysts expect a sharp and brief retreat. The metal’s 14-day relative strength index is now above 90.
Several market players meanwhile raised their palladium price forecasts for 2020, including HSBC Securities (USA) Inc. and UBS Group AG, confirming their bullish outlook for the metal amid a continuing supply deficit.
“The risk on the downside lies with some speculative profit taking, but any correction should be met with aggressive buying and remain short-lived,” precious metals refiner and trader MKS PAMP Group said in a note.
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