About That Palladium...

May.17.10 | About: ETFS Physical (PALL)

By Brad Zigler

Real-time Monetary Inflation (last 12 months): - 1.4%

Look below. THAT's a nice chart. Being long palladium—or its security proxy, the ETFS Physical Palladium Shares (NYSEARCA:PALL)—has been a good, a very good, trade this year.

Weekly NYMEX Palladium

Weekly NYMEX Palladium

So what's not to like?

Well, there's Europe, for one thing. Worries about a potential weakening in Continental auto demand are bound to plague platinum group traders now. But there's something more immediate that's even more vexing.

The last time palladium prices got to this level—in February 2008—volume was twice as high as now. Open interest, too, was higher. That says there's been less commitment to the 2010 price run.

And, if we look at the money flows for that palladium security proxy, we can see a progressive draining of capital over the past month. Another worrisome sign for bulls.

PALL Closing Prices Vs. Money Flows

PALL Closing Prices vs. Money Flows

Currently, PALL shares are probing below a critical support level at $50. A close today below the half-century mark would give bears the confidence to challenge the $47.80 level, which, if reached, would retrace half of the February-April run-up. And that would be very bearish for palladium, putting support at 45.60 in sellers' sights.