What's Going On with Palladium?

*
I had an inquiry from a reader about what is going on with Palladium - why was it dropping so sharply of late.  Honestly, I did not know the answer but this evening I did a little digging and think I may have attained a decent understanding.  And after all, I bought PAL just days ago at what now looks like a very poorly timed trade - so I want to know what is going on, as well.
*
This chart is the daily continuous contract of the Palladium future (/PA).  One of the first things I was curious to figure out is whether recent price action is anything out of the ordinary.  The conclusion I came to is that Palladium has corrections in the 8-15% range and our current spill, at 11%, is not unusual.....assuming it stops where it is.
*
Then I tried to figure out what the "news" was to explain the recent price drop.  You know, there is always an "excuse" or "reason" for these things....lol.   Turns out to be a sensible one.  As a major industrial use of palladium is related to the car industry, the recent spike in the price of crude oil gets the nod.
*
OK, so is this issue of the cost of gasoline rising going to send palladium back to $300 an ounce or what?  Are car sales going to fall off a cliff when the price of gasoline reaches a certain price?  I don't know, but I doubt it.  The humongous growth in the sale of cars is taking place in China and India, for one thing.  And palladium, at half the price of platinum should be in increasing demand as the cheaper alternative to platinum usage, should car sales start to become an issue.
*
Just a guess, but I think what is going on with palladium is an overdue normal correction.  Nothing more (I hope).
*
And just to convince myself my guess could be true, I did a little poking around and I will leave you with these quoted tid-bits, should you be interested in reading a little research.
*
"Much of 2010’s huge palladium gains—which saw it peak at $825.50, its highest price in almost 10 years—were due to the demand generated by its increasing use as a substitute for more expensive platinum as an autocatalyst in the catalytic converters of gasoline engines. The Chinese domestic auto industry saw massive growth last year and is expected to grow again this year, although less quickly as the Chinese government is imposing new vehicle sales quotas in Beijing, and possibly other urban centers, to curb pollution and cool an overheating economy".
*
"Risks to palladium’s growth include top producer Russia’s palladium stockpiles, which are officially a state secret but are rumored to be at historically low levels due to a widely-quoted statement, from an executive of major palladium firm Norilsk Nickel, that they could be depleted in 2011 or 2012. If the stockpile proves exhausted, palladium prices could swiftly increase, but if Russia surprises the market with an increase in supply, prices could fall. The Russian government would be as eager to take profits from high prices as any other entity, however, so it has little motivation to flood the market".
*
"Platinum and palladium shortages are possible in the second half of this year, according to Goldman Sachs Group Inc. The shortages may result in price rallies similar to the 40 percent jump in platinum during South Africa’s electricity power cutbacks in 2008, Goldman analyst Eugene King wrote in a report on Feb. 14. Economic growth in the U.S. will tighten balances for both platinum and palladium, leading prices “substantially higher than current levels,” King wrote.



Global palladium demand may outstrip supply by about 560,000 ounces this year".
*
"Palladium accounts for 90 percent to 95 percent of precious metals used in gasoline catalysts and platinum is used for about 75 percent in diesel devices, according to Johnson Matthey, which produces a third of the world’s auto-catalysts.
China’s vehicle sales will grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, the China Association of Automobile Manufacturers forecast".
*
“If oil comes in to spoil the party, then that is a concern for me,” Wood said. “Obviously political unrest like that affects confidence. Confidence in the world recovery will be dampened.”