Palladium prices have seen a meteoric rise over the past 12 months, eclipsing gold as the most precious metal and surging to historic heights. However, there have been a number of voices warning that a potential correction could be coming as prices plunged rapidly over the past couple of days.
With last Friday’s yield inversion already scaring some investors that a downturn in the general economy might be on the way, one respected financial blogger has found that there could be a major reversal in palladium prices in the near future which would have a spillover effect into more mainstream indexes.
Notes From the Rabbit Hole blogger Gary Tanashian has sounded the alarm bells. Thursday’s trading sessions saw June palladium future contracts drop $112 per ounce; the largest dollar decline the commodity as seen since 1984.
“A pop in the palladium bubble means something, just like the silver pop meant something in Q1 2011,” said Tanashian, who cautioned that the slump in palladium prices was “emblematic of the blow out of the last gasp of the commodity bubble and inflation trade of the time.” He added that “Palladium on the other hand, has gone more in correlation with the U.S. economy and stock market. If you believe that the daily chart above is the first shoe dropping in the palladium bubble then you are very much on guard about the S&P 500, says the chart below.”
“The dashed vertical lines show the relevant cracks in palladium and they show that each time (2001 & 2008) palladium cracked just as SPX was about to begin vicious downtrends after a year or more of top-making. Sound familiar? SPX has been making a potential top for a year now,” he mentioned. While the blogger does admit that this could be a coincidence, back in 2013 Tanashian used a similar methodology in the change in palladium prices back in 2013 as a positive sign which predicted a bull run in the economic cycle that has run its course up until now.
While skeptics have responded by saying that a downturn in what is a cyclical precious metal might not be as correlated with the US stock market, it’s not an uncommon thing to see analysts using specific commodities as proxies and “canaries in the economic coal mine” so to speak for the wider economy. Back in 2016 as worries of a market reversal grew, surging copper prices predicted a Beijing stimulus. One article published last month titled “Is copper predicting a US-China trade deal?” copper has always been known as “Dr. Copper” for its historically predictive ability to evaluate the state of the global economy. However, copper is more correlated to the moves o the Chinese economy, while palladium doesn’t have such an emphasis in Asia.
While Tanashian responded by acknowledging the flaws of using these metals as a predictor, he added that “experience has taught me that when alarming things happen, even if in just one single (yet key) asset market or commodity, attention should be paid. We used PALL/Gold as a positive cycle signal in 2013 (and again in 2016), so we will use it again now going the other way. It won’t be the be-all end all. I don’t have a secret sauce with which to transfix you. I have themes driven by indicators and this indicator is now driving a theme, and it’s not pleasant.”
Overall, prices have dropped from previous highs at $1,613.90 range down to $1,362.55 per ounce over the period of a couple of days, a drastic decline for a precious metal that at one point people thought would break $2,000 per ounce.