Oct 23, 2018
The price action in palladium is eerily reminiscent of early 2001, and this could have major implications for gold and silver in the months ahead.
Back in 2001, the price of palladium spiked to highs above $1100/ounce. At the time, major physical palladium shortages appeared and tremendous strain was put upon the LBMA palladium market in London. Lease rates soared, and it appeared that the LBMA was about to crack. Until, that is, the Russians (the world’s largest provider) were persuaded to ride to the rescue with a fresh supply of physical palladium.
As you can see below, price spiked from $400 to $1100 and then fell back to $400 over the course of twenty-one months from December 1999 to September 2001.
But now, in 2018, palladium is all the way back and making new all-time highs. In fact, it’s up over 30% over just the past nine weeks! Most importantly, there are reports that lease rates for palladium in London are skyrocketing again, just as they did in 2000.
The stress in London will invariably stretch over to New York, too. As you can see below, the Commitment of Traders structure for COMEX palladium is similar to what we’ve grown accustomed to in COMEX gold and silver, i.e. The Commercials are heavily net short while The Speculators are heavily net long.
So, now here’s where this is going to get interesting…
First of all, if the price rise is related to a physical supply squeeze again, do you think that the Russians will be persuaded to rescue the LBMA as they did in 2001? Perhaps the Yeltsin regime of 2001 was willing to play ball in this way, but I highly doubt that the Putin regime of 2018 will be as cooperative.
Next, though The Banks are able to manage and control the prices of gold and silver through their interventions on the COMEX, the market for COMEX palladium is tiny in comparison. This makes price easy to manipulate during COMEX hours, but the physical market through London dominates things for the rest of the day.
And so, let’s have some fun thinking about where this could all be headed.
What if the supply of physical palladium continues to dwindle? And what if the price continues to soar through $1200 and beyond? Won’t this likely lead to even higher prices and greater physical demand? And if even greater physical demand emerges, what might happen to the LBMA palladium market?
Understand that the LBMA palladium market is managed in the same unallocated and leveraged structure that we see in the LBMA gold and silver markets. If physical demand succeeds in breaking the LBMA palladium market, investors globally will finally be forced to consider that the LBMA gold and silver markets are unallocated frauds, too. This could easily lead to the type of physical run that we are now seeing in palladium and, eventually, the same destruction of the LBMA gold and silver schemes.
That may be a lot to ask, and maybe The Bullion Banks will somehow manage another escape similar to 2001. However, the situation in palladium definitely requires the attention of gold and silver investors everywhere.
It has long been said that silver is the “Achilles’ Heel” of the current LBMA/COMEX fractional reserve pricing scheme. Perhaps palladium will end up being the surprise secret weapon instead. Only time will tell. Watch this all very closely in the weeks ahead.
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