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Inside the Palladium ETF's Recent Surge (PALL)

Zacks Equity Research

Despite some global commodity uncertainty, Palladium, the lustrous and rare silvery-white precious metal, has established itself as a vital product. The metal once used as coins now attracts millions of investors around the globe and finds its way into a number of industrial uses as well.

Currently, the automobile industry accounts for about two-thirds of the world’s palladium demand every year. Beyond that, the product is used in a variety of electronics, dentistry applications, medicines, and jewelry.

Of late, palladium demand has surged due to a recovery in the automobile market and stringent emission standards worldwide especially in the emerging BRIC economies. This helps to boost palladium demand at a time when other metals are facing a bit of weakness (read Will the Palladium ETF Shine Brightest This Year?).

All good news

As reported by Bloomberg, holdings of all platinum ETFs have increased by 30% since the beginning of this year and palladium holdings have increased by 16%. Both are healthy increases given the short period of time, highlighting investors’ preference for the metal more than the miners. Given the data and opinions provided at Platinum Week, we continue to believe in a bright future for these two precious metals.

After a disappointing month of April, auto sales have surged 8.2% in May, with annual sales set to rebound above 15 million. Rising demand from the automobile sector has increased Palladium’s growth outlook. In 2012, about 90% of the metal was absorbed by the automobile industry (representing a huge surge over normal years).

Lately, investors have shifted their interest from the yellow metal to this white metal. In May, the physical palladium shares rose to 9.2% in light of mounting automobile sales. (See Time to Buy this Precious Metal ETF?).


In a report for Sprott Inc. (TSX:SII), David Franklin noted that 2012 demand statistics for palladium will be bullish for the metal this year and recommended that miners take positions in the metal itself.

ETF Trends reported that the ETFS Physical Palladium Shares (ARCA:PALL) gained 9.2% this past month and is up 21.3% percent over the last year, in part due to the fact that consumers are buying more cars. Supply deficits are also helping to raise prices, suggesting that there is plenty of reason to be bullish on the commodity going forward.

Palladium ETFs

For investors seeking to take advantage in the precious metal space, palladium could be considered as an extremely lucrative investment avenue given its growing demand and decreasing supply throughout the year. One such way to target the metal is via an ETF from ETF Securities, PALL (read Palladium ETFs to Rally in 2013?).

ETF Securities Physical Palladium Shares (PALL)

Launched in January 2010, the fund seeks to match the spot price of palladium, net of fees and expenses. The fund owns palladium bullion in plate or ingots form to back the shares.

With total assets of more than $587.2 million, the fund is reasonably popular, trading roughly 62,000 shares a day. The ETF does charge 60bps in fees, which is a bit expensive, especially when compared to other precious metal funds out there.

Still, the product has seen a decent return, and particularly when compared to other commodities lately.

The Bottom Line

Palladium is indispensable for the automobile industry and its demand will rise over the years. With the automobile sector seeking growth, the demand for the metal can only higher.

Currently PALL has a Zacks ETF Rank of 2 or ‘Buy’, suggesting that the product is expected to continue its run over the next one-year period. Due to this, investors seeking to make a play on commodities may want to consider this ETF over some of its more sluggish peers for the time being (See 3 Commodity ETFs Still Going Higher).

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