Palladium dips on dollar, but SA supply fears support

London (May 23)   Palladium dipped on Friday as the dollar firmed, but was set for its best week in two months on worries that an extended strike could drag on even longer in major producer South Africa.

Platinum was on track for its second straight weekly gain, also on supply concerns, while gold was headed for a flat week.

Palladium edged down 0.3% to $829.70 an ounce by 10.42am GMT, pressured by a stronger dollar against the euro, making US-priced commodities more expensive for Europeans.

The euro dropped to a three-month low against the dollar after a soft German business sentiment survey added to expectations the European Central Bank would ease policy next month.

Palladium’s weakness, however, was seen as only a pause in a rally that has pushed it up 16% this year on worries about the effect of a crippling miners’ strike in South Africa.

It touched $837.40/oz in the previous session — its highest since August 2011.

"The longer the strike goes on, we are now at the point where people are asking the question about when dwindling stocks will start to have an effect," said Ole Hansen, head of commodities research at Saxo Bank.

"Even though palladium is a smaller market, there’s good flow into ETFs. So there’s basically a good fundamental investment story."

Commerzbank said in a note that over the past two days of trading, 19,000oz have flowed into palladium exchange-traded funds (ETFs).

"Inflows since the start of the quarter amount to 670,000oz. ETF holdings now total just shy of 2.8-million ounces, and thus exceed the annual production of Russia, the world’s biggest producer country."

Palladium has gained 2.3% this week, while platinum has climbed 1.4%. The four-month miners’ strike in South Africa could last much longer, the CE of Impala Platinum told Reuters, adding that feedback from initial court-mediated talks with the world’s biggest producers and main mining union was lukewarm.

The strike is the longest and costliest industrial action in the mining history of South Africa, the biggest producer of platinum and the second-biggest producer of palladium.


Spot gold also dipped, trading down 0.1% at $1,291.60/oz and was headed for a largely flat week.

"Gold has been trapped in a very compressed range for well over a month, but we suspect that we could see a substantial move in the days ahead once the Ukrainian elections are over," INTL FCStone said in a note.

Lessening tensions in Ukraine also weighed on gold, seen as a safe-haven asset, which has been buoyed by the crisis between the West and Russia over Ukraine, gaining about 7% this year.

Russia will pull back all forces deployed to regions near its border with Ukraine "within a few days", its deputy defence minister said on Friday, a move that if carried out could ease tensions before Ukraine’s presidential election on Sunday.

On the physical side, premiums in top buyer China remained steady at about $2/oz.