…Understanding palladium is more important than ever, because there are important correlations between the palladium/gold ratio and stock market prices and, currently, the ratio of palladium/gold ratio is giving warning signals for both the economy and the stock markets.
The comments above and below are excerpts from an article by I.M. Vronsky (Gold-Eagle.com) which has been edited ([ ]) and abridged (…) to provide a faster and easier read.
Without any doubt palladium is more an industrial metal than a precious metal. Only a small portion of total palladium demand is attributed to its precious metal characteristic as shown per the following table of uses.
Though it is less popular and beloved by investors than gold…[it] is actually a far better economic indicator. This is because palladium happens to be the most industrially used metal of the precious metals class.
- Demand for palladium is overwhelmingly (90%) derived from industrial uses (primarily emission controls)…Platinum is perhaps better known for its uses in catalytic converters but palladium has become the main emission control catalyst in vehicles using gasoline…[primarily because it is] less expensive than platinum. Palladium is also widely used in electronics of all kinds because of its excellent conductivity and durability.
- gold receives less than 10% of its demand from industrial applications…
The palladium/gold relationship to the direction of both stock markets and GDP
The palladium/gold ratio is important because…there is a strong trend between palladium to gold and the direction of both stock markets and GDP. Consider that the price of palladium has collapsed over the last year vis-à-vis gold. From March in 2015 to end of May in 2016, the palladium/gold ratio has plummeted from 0.70 down to the present approximately 0.44. This is a shocking decline of 37% in about a year’s time. You can see this sharp move downward over the last year on the chart here:
Below is a 36-year chart of the palladium price super-imposed with the S&P 500 stock index. Clearly, the S&P 500 runs in tandem with the price of palladium. In fact this industrial metal might be considered a leading indicator of the U.S. economy. Moreover, it is imperative to notice the price of palladium has been declining since mid-2014, while the S&P500 Index has levitated higher…indubitably fueled by the U.S. Fed via quantitative easing with a view to giving the impression all is well (when in actuality the U.S. economy is faltering on many fronts). Therefore, if history is testament, US stocks will again follow the price of palladium downward (as the S&P500 did in 2000-2002 and 2007-2008 bear market periods).
Indeed, On June 23 the UK approved the Brexit… A realistic sign of what looms on the horizon are the stock market reactions on June 24, 2016. Stock markets on all continents were mercilessly hammered down….in a rout of epoch proportions. While panicked investors stampeded to the safe havens of gold, silver and platinum on Friday, palladium sold-off…duly reflecting the declining trend in industrial usage especially now in the wake of Brexit.
Palladium Short-Term Price Forecast
The daily palladium chart shows a bearish head and shoulders pattern in formation. In the event the neckline at $532 is cut, palladium would have a downside price objective of about $428.
The chart above shows that…
- [the price of palladium has been] in decline for nearly 2 years, and might decline to about $428 if the bearish head and shoulders neckline is cut.
Consequently, the S&P500 would most likely soon follow suit by heading south…which means the rebirth of a bear market in stocks.
The Dow Stock Index/US Bond Ratio
…Another technical factor signaling that a bear market looms on the horizon [is the fact that] the Dow Stock Index/US Bond ratio is showing a bearish triple top. The last TWO times this ratio topped a ravaging bear market in US stocks began:
Based upon the above rationale, the Dow Stock Index might eventually be hammered down to old support at about 7500.