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Palladium ETF Continues to Surge in 2020: What Lies Ahead?

Sanghamitra Saha

After a surge in 2019, palladium price momentum is showing no sign of a slowdown in 2020. The rally has mainly been backed by growing global demand and stagnating supply. “There are few well-established palladium mines” while demand has been on the rise on increased consumption of gasoline engines.

Stringent emission control norms have been fueling demand for Palladium-using, petrol-fueled cars as governments around the world look to fight climate change. Aberdeen Standard Physical Palladium Shares ETF PALL has added 26.8% this year, after a 74.4% increase in the past one-year period (as of Jan 17, 2019) (read: Top ETF Areas of Last Week).

Palladium crossed the $2,500-per-ounce mark lately. With this, the metal has recorded the highest price per ounce ever of the four main precious metals — gold, silver, palladium and platinum.

Will the Stupendous Rally Continue?

Some market watchers believe that the rally could be an extended one as it is demand-supply driven. The automotive industry, mainly involves in the manufacturing of catalytic converters for vehicles, is a key driver for palladium. “Increasing environmental scrutiny of vehicle emissions in China and Europe has clearly been constructive for palladium demand,” ING analysts said in a recent note to clients, as quoted on Wall Street Journal.

China, the largest auto market, will necessitate each vehicle to contain around 30% more palladium, platinum and rhodium from 2020, per analysts at Morgan Stanley. Since the signing of the U.S.-China phase-one trade deal has brightened up the growth prospect in China, palladium had every reason to outperform.

Meanwhile, European car sales have been recovering for fourth months in row, thanks to strong “demand for both premium and volume cars and growth in all EU countries.” New car registrations jumped 21.4% in the European Union and the European Free Trade Association (EFTA) countries in December.

The prospect of higher car taxes, expected to go into effect in 2020, boosted car sales in some EU countries such as the Netherlands and Sweden, where registration surged more than 100% each. The supply scenario is also worsening with South Africa’s mine output of Platinum Group Materials (PGM) falling sharply by 13.5% year over year in November due to some power outage issues.

But then, a point will come when correction will be seen. An analyst at Noah Capital Markets Ltd believes that spot palladium prices could be pulled back to average $2,250 an ounce for the rest of the year.  A “price setback is possible for palladium following its impressive rally this year," according to ANZ strategists.

Against this backdrop, investors should have a look at the palladium ETF in detail (see all Precious Metals ETFs here).

PALL in Focus

This ETF is designed to track the price of Palladium Bullion. The fund has amassed about $406.1 million in assets and charges 60 bps in fees (read: Trump May See Easy "Win in 2020:" ETFs to Bet On).

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