Investors Bail on One of the Decade's Most Valuable Commodities By Sean Michael Cummings, analyst, True Wealth America is in the grip of a fast-growing crime wave... Victims reported this offense about 14,000 times in 2020... and more than 52,000 times in 2021. That's a growth rate of about 271%. I'm talking about catalytic-converter theft. A catalytic converter helps the exhaust system work properly in a gas-powered car. And thieves are stealing these critical parts now more than ever... It's all because catalytic converters contain some of the most valuable precious metals of the past decade. Palladium is one example. The palladium in a catalytic converter plays a key role in suppressing air pollution from cars. So, when the U.S. Environmental Protection Agency tightened its emissions standards in 2017, palladium demand boomed. And the resulting shift in the market fueled a multiyear bull run... From late 2016 to 2021, the metal's price spiked by more than 336%. It outperformed silver by more than five times, gold by nearly six times, and platinum by almost 10 times. It's a different story now, though. Palladium has fallen more than 50% since its most recent peak. It just about hit a rare "oversold" level. And history shows a reversal is likely. Let me explain... Palladium recently brushed up against oversold territory. That's based on the relative strength index ("RSI")... This measure shows us excessive price movements in either direction. When investors pile into an asset and its price soars too much, the RSI rises above 70. This means the asset is "overbought." And when investors bail on an asset and its price falls too hard, the RSI drops below 30. This suggests that the asset is oversold. Whenever the RSI hits one of these critical levels, investors should pay close attention... because it tells us prices are likely to snap back in the other direction. Again, we're seeing this setup in palladium today. A recent fall in the RSI brought it right to the brink of oversold levels. But the metal is already starting to edge back up. Take a look...
The metal hit an RSI of 30.4. While that wasn't enough to hit oversold territory, it's the closest palladium has come since June 2022. I wanted to know how significant this move was. So I examined every time palladium staged a similar bounce out of oversold territory after spending six months or more above it. According to history, moves like this one have led to outperformance in palladium. Take a look...
Across its entire history, palladium has returned a little less than stocks – about 5% – in a year. But you can bump up those gains by buying after the first "oversold bounce" in six months... After this signal, the commodity tends to stay flat for about three months... And it even loses about 2% after six months. However, it more than makes up for the loss later on... On average, palladium was up 13% the year after rebounds like this one. Oversold rebounds are rare for palladium. There have only been about 18 in its history. But 52% of those cases saw positive returns in 12 months after the signal. And the maximum gain was a stunning 80%. Right now, palladium prices are falling. But there's likely still upside ahead for this metal. We may see it outperform in the coming year. Good investing, Sean Michael Cummings Further Reading "Most folks have stopped caring as much about commodity investments," Brett Eversole writes. But that's a mistake, according to history. For one beaten-down commodity, a turnaround has likely already started... Read more here. Oil's hot streak is likely to continue in 2023. And while we could see volatility in oil prices over the short term, history shows this commodity is on track for a big year... Read more here. |
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