Palladium CME Futures Contract
The CME (Chicago Mercantile Exchange) palladium futures contract, reflects the value of palladium that is 99.95% pure and physically delivered to a CME regulated warehouse. According to the CME web site, the contract represents 100 troy ounces of palladium, weighed to the nearest thousandth of a troy ounce. Palladium that is delivered can take the form of a homogeneous cast plate and/or ingot, with a weight tolerance of 10% either higher or lower. Each contract that is delivered may consist of “more than one piece of plate and/or ingot, with no individual piece weighing less than 10 troy ounces, or the equivalent weight in grams.“
Palladium is considered a precious metal but it has many industrial uses and while used to create jewelry, more than 50% of the palladium that is used today occurs within the automotive space. Palladium is a component in fuel cells and helps produce heat and electricity. Palladium is installed in catalytic converters, to remove harmful auto exhaust, such as hydrocarbons and carbon monoxide. The goal is to remove nearly 90% of those gases and convert them into nitrogen carbon dioxide and water. Additionally, palladium is used in electronic, dentistry and chemical applications.
The CME Palladium futures contract trades in dollars per troy ounce. Each contract contains 100-troy ounces. Trading in Palladium futures is regularly conducted in the next 3-calendar months, as well as March, June September and December going out for 15-months. The exchange determines the number of months that are available for trading. The minimum price move is $0.05 per troy ounce which is equivalent to $5. Trading is open for business from Sunday – Friday 6:00 p.m. – 5:00 p.m. with a 60-minute break each day beginning at 5:00 p.m., according to the CME web site. Trading in the current contract terminates on the third last business day of the delivery month.
For the majority of palladium that is delivered to a regulated depository, the warehouse will generate an inspection that is made by an assayer or a producer of palladium. An Assay certificate will be created cover each piece of the contract that is in the form that is approved by the exchange.
The delivery of physical palladium can take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.
How to Trade Palladium
Palladium trades like a precious metal and is generally highly correlated to both gold and silver. The price, is quoted in U.S. dollars, and therefore is subject to the volatility generated by the global forex markets. Generally, when the dollar is increasing in value, palladium prices are declining, as well as vis versa.
Changes to monetary policy, that will either increase or decrease the value of the U.S. dollar, is watched carefully by palladium traders. With U.S. treasury yields at historic lows, traders will be watching future decisions by the Federal Reserve. Supply and demand also play a large role in price movements of palladium. Enhanced demand for jewelry and robust demand for cars, can lift the price of palladium. Both the United States and China are seeing robust increases in car sales which will drive up the demand for palladium.
The supply can be altered by geopolitical events, while generates substantial volatility. Russia controls approximately half of the palladium pricing, and South Africa controls nearly one-third of palladium prices.
The number of contracts that are held by different types of traders are also reported by the Commodity Futures Trading Commission. Investors should analyze the number of outstand contracts held by managed money, which can help determine where the smart money is trading.