Palladium and Gold

By: Sol Palha | Tue, Nov 6, 2007
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"Most of our executives make very sound decisions. The trouble is many of them have turned out not to have been right." ~ Donald Bullock American Business Trainer

Palladium is now trading above its main up trend line (3 year chart) but the difference here is that it has put in a huge channel formation. Note how long this channel formation is, it's almost two years old as it started back in Dec 05. The last channel formation was roughly 9 months long and it produced a move of over 100%; Palladium moved from 180 all the way to 420 before pulling back. The next move could very easily produce another 100% plus gain and there are several reasons for this.

  1. One of the main reasons is the huge disparity that exists between the price of Platinum and Palladium. Historically there is not more then a 200-300 dollar difference but right now the difference is extreme. Last time when palladium led the way up all the way to 1040, the difference between the two was still not more than 400 dollars. Platinum was trading in the 600 ranges while palladium momentarily soared past the 1000 mark. Today platinum is trading past the 1300 mark and Palladium is trading over 900 dollars below it. The price discrepancy is extreme to say the least
  2. We have a huge channel formation that has held for almost 2 years and inside this channel formation we have a secondary formation that is 9 months old. The last channel formation was only 9 months long and it produced a 100% move in price. Thus the picture now is twice as bullish as it would have been if there were only one channel
  3. Chinese demand for palladium is surging; it's starting to be used as source of jewellery there. The last statistic showed that the Chinese were one of the biggest spenders in the world when it came to jewellery. Furthermore Chinese car manufacturers are now using Palladium in their catalytic converters as opposed to platinum and we are sure that India and eventually all the major car manufacturers will follow suit because of the huge price differential between the two metals.
  4. India has come out with the worlds cheapest car (cost of 2,500) which now means that millions and millions of individuals who could never purchase a car before will be in a positions to do so now. This will be the first car they have ever driven so you can imagine how fast they will be ready to jump and pounce on these cars when they become available. To get an idea of how these individuals feel like, park your car and ride a bike for one week. After one week you will be ready to throw your bike in the bin; now imagine you were doing this all your life. All these cheap new cars will need catalytic converters and what do you think they would rather use, Palladium which is cheaper and does the same job or platinum which costs almost four times as much

Final note

Palladium is actually rarer than gold and as such it should be selling at higher price. To give you an idea of how rare Palladium is consider that in 2006 global mines produced 81 million ounces of Gold but only 7 million ounces of Palladium and yet Gold is selling for almost twice as much as palladium. Imagine how most would feel today if Platinum was trading at 500 while Gold was soaring past the 800 dollar mark. Finally the Palladium futures market is very thin and once money starts to flow into it, huge moves become possible. We would not be surprised one day to see palladium futures move up as much as 50 dollars a day.

Gold Update

In Sept 24 article titled Gold and Dollar Outlook we stated that Gold needed to trade above 720 for 21 days in order to be in a position to challenge the 900 dollar level. Well Gold has done that and has now overcome the first obstacle which is 801; if it can now trade past the 810 level for 6 days in row it will add even more power to this move and virtually assure that 900 is challenged and perhaps surpassed before it pulls back. In another published on the 15th Oil to Gold Ratio we stated that the oil to gold ratio had now moved in Gold's favour and at the same time we also stated that Silver provided for a better investment as on a percentage basis the gains would be larger. In less than a month the value of silver bullion has risen roughly in the range of 10%. We expect this more to accelerate as gold nears the 840 price point level.

We advised our subscribers and readers back in Oct of 2006 that it was prudent time to add some gold as for the first time in years our indicators were suggesting that gold was trading in the oversold ranges. At this point in time gold was trading roughly at 600; those that purchased are already sitting on gains of roughly 35%. In august of 2006 we issued the following long term targets on Gold:

Next zone Major of resistance is 720 (there are other zones in between but we are looking at the very long term picture right now); a break past this should take gold all the way to the 830-870 ranges.

2nd target will be a test of the old highs followed by a pretty rapid pull back then some sideways action; Gold will then be ready to test the 1200 zone.

Extreme target for now is 1800 dollars. Full Article

It appears that Gold has hit the first of the targets we listed back in 2006 and should be on its way to hit the new updated targets we listed this year which now stands at 900.

This is 29 year chart of Gold and it very clearly illustrates that gold is in a very strong uptrend and has broken through a major zone of resistance. As this is a very long term chart this is a rather bullish development and as long as Gold now remains above 750 the intermediate outlook is going to be very bullish. As stated before the next target is now 900.

Traders who have no positions in Gold have two options

  1. Take positions in the most beat up stocks in this sector; a contrarian play.
  2. Take position in silver stocks as there are still at least two big names that have still not moved that much and things will soon start to heat up as Silver goes on to put in a series of multi decade highs.

Conclusion

It's a bit too late to buy Gold Bullion right now; the best time off course was when it was trading back in the 290-330 ranges and the second time was when it generated a buy signal back last year. Those that have no positions in bullion might consider precious coins such as the 20 dollar St Gauden as they have not moved that much in relation to gold bullion over the last few years and so they still remain a good long term investment. Gold is now trading past 800 dollars and not everyone can afford it thus Silver remains a very good alternative as does Palladium bullion. On a percentage basis silver will outperform gold. For bullion purchases we would highly recommend Larry Laborde from http://silvertrading.net; we have dealt with for years and our subscribers have nothing but good things to say about him.

"The person who in shaky times also wavers only increases the evil, but the person of firm decision fashions the universe." ~ Johann Wolfgang Von Goethe 1749-1832, German Poet, Dramatist, Novelist

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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