Can Palladium See Explosive Price Action? – TDS

Algo buying activity in palladium is now likely to reach bands, notes Senior Commodity Strategist Daniel Ghali.

Discretionary shorts are vulnerable

“Prices still need to fall to $1,000/oz to catalyze the next large-scale buying program, but given the massive net short position held by discretionary traders, we see substantial margin for further buying in the current setup. In fact, there are already signs that discretionary shorts are under pressure, in stark contrast to previous setups where this cohort held a large margin of safety in paper returns to withstand a tightening attempt.”

“This time, the recent changes in their positions have completely eroded their margin of safety. We estimate the aggregate entry price for discretionary shorts from May 2023 to just $1010/oz, but more recent shorts are worse. For entrants from May 2024, we calculate a weighted average entry price of $940/oz. For those committing to the latest round of short purchases in July – just $915/oz.”

“Discretionary shorts are not only vulnerable, they are now underwater. This setup could lead to explosive price action given the extremely low inventory in the CME vaults relative to open interest in the paper markets.”