Investors have repriced the Fed’s terminal rate again as a reaction to this week’s US inflation data, sending the palladium price sharply down to the lowest level since the Covid crash in 2020.
Inflation remains elevated
The Producer Price Index (PPI) for final demand in the United States fell from 6.5% to 6% annually in January, according to statistics released by the Bureau of Labor Statistics on Thursday. This result surpassed the market’s forecast of 5.4%.
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At the same time, the annual Core PPI decreased to 5.4% from 5.5%, contrary to experts’ expectations of 4.8%. On a monthly basis, the Core PPI came in at 0.5%.
Hawkish Fed comments
Thomas Barkin, president of the Federal Reserve Bank of Richmond, and Lorie Logan, president of the Federal Reserve Bank of Dallas, both stated, in response to this week’s hot CPI figures, that the central bank would need to prioritize getting inflation down to the 2% objective. The Federal Reserve is anticipated to raise its policy rate a minimum of twice more to a range of 5% to 5.25%, with financial markets maintaining odds of a further quarter-point increase in the summer.
Unlike precious metals such as gold, palladium is subject to macroeconomic performance. This is due to its industrial application. Along with platinum, palladium is used to produce catalytic converters for the automobile industry.
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The price of palladium has also plummeted due to the delayed recovery of the Chinese economy. Despite the reopening, preliminary data indicate that the nation’s economy is still struggling. China is one of the largest buyers of palladium goods. In addition, there is a chance that the palladium supply may continue to rise this year.
Commerzbank analysts think that platinum is being used more and more instead of palladium. Also, the number of electric cars is growing, therefore less catalytic converters are needed.
Downtrend is intact
Failing to hold above the 2022 lows at $1,550 reinforced the bearish trend, with the 2020 lows at about $1,350 serving as the next target. Conversely, the price needs to rise over $1,550 to stabilize in the near future.
Palladium 1W chart, source: tradingview.com, author’s analysis
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