11/08/2016 05:57 AST
Palladium jumped more than 7 percent on Wednesday as bets on lower prices were reversed in thin conditions after the metal broke above key chart levels, while gold rose as weak US data weighed on the dollar. Palladium surged overnight in Asia, hitting 14-month highs.
Traders said a wave of short covering was likely triggered after the metal broke above $700 an ounce, and then above last week’s 14-month peak of $723 an ounce.
Spot palladium was up 6.34 percent at $738 an ounce at 1140 GMT, having risen as high as $746.10 an ounce in Asian trading hours.
The move was likely to have been exacerbated by thin liquidity, analysts said.
“You can talk about fundamental explanations — strong car sales, a reduction in supply from Russia — but those didn’t happen overnight,” Macquarie analyst Matthew Turner said.
“In palladium, you have to think of thin market explanations.” One trader at another bank said: “(This was) a short covering rally, exacerbated by low liquidity.”
Palladium, used in catalytic converters in cars, climbed nearly 20 percent last month in its biggest one-month rise in 8-1/2 years. That may mean investors who had bet on lower prices could be exposed to heavy losses. Gold, often perceived as a hedge against economic and financial risk, was 0.84 percent higher at $1,351.50 an ounce.
The metal rose after a report that US worker productivity fell for a third straight quarter in the spring of this year. That pressured the dollar index, which gauges the US currency against a basket of six major currencies, and US Treasury yields.
The unexpected drop in US productivity may confirm the US Federal Reserve’s fears that the economy could slip into a period of slow growth, reducing the central bank’s willingness to raise interest rates.
Gold is highly sensitive to rising US interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which the metal is priced.
US gold futures for December delivery were up 0.84 percent at $1,357.9 an ounce. Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell for a second straight day on Tuesday.
They slipped 0.12 percent to 972.62 tons from Monday.
Among other precious metals, platinum was up 3.48 percent at $1,190 after rising to $1,191.70, its loftiest in over 17 months, while silver was up 2.8 percent at $20.40 an ounce.
Reuters
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