Palladium Slumps to Lowest in Three Months Amid Demand Concerns

(Bloomberg) -- Palladium futures tumbled to the lowest in more than three months amid signs of weakening investment and physical demand for the metal used in auto pollution control devices.

Automobile and parts dealer sales fell 0.5 percent in August to C$10.9 billion ($8.17 billion), leading the third straight decline in the nation’s retail sales, Statistics Canada said Friday in Ottawa. In the U.S., sub-prime borrowers are falling behind on their car loan payments at the highest rate in more than six years, S&P Global Ratings said earlier this month.

Palladium, used in gasoline-fueled vehicles, has slumped from a one-year high in August, in part as investors price in increasing probability that the Federal Reserve may raise interest rates by the end of the year, curbing the investment appeal of non-interest bearing precious metals. Money managers are getting more pessimistic about the outlook on palladium, cutting their net-long positions on palladium in seven of the past nine weeks.

“Demand is really starting to fall,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said by telephone. “You’re going to see that as interest rates go up in the U.S., auto loan rates will rise and you’re probably going to see automobile sales decline.”

Palladium futures for December delivery slipped 1.9 percent to settle at $620.75 an ounce at 1:10 p.m. on the New York Mercantile Exchange, after touching $615.10, the lowest for a most-active contract since July 12.

In other precious metals:

• Gold for December delivery gained less than 0.1 percent to $1,267.70 an ounce on the Comex in New York, as silver declined 0.3 percent.
• Gold-backed ETFs expanded for a seventh session, taking assets to the highest in more than three years.
• On the Nymex, platinum futures declined 0.3 percent.

--With assistance from Ranjeetha Pakiam and Thomas Biesheuvel To contact the reporter on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net. To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Steven Frank