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Why Palladium ETF is Soaring

Sanghamitra Saha

Palladium price is on a tear lately and is once again on its way to attain the two-year high. The pure-play palladium ETF ETFS Palladium Trust PALL is up over 23% so far this year (as ofJune 2, 2017). The impressive rally came on the heels of growing global demand and stagnating supply.

Going by an article published on Financial Times, “the palladium market is witnessing a rising deficit,” as per UK chemicals multinational. In fact, in 2016, the palladium market saw five successive years of significant deficits. This is in contrast to its contemporary metal platinum, which is seeing “its first surplus in six years.”

Notably, the automotive industry, mainly catalytic converters for vehicles, is a big driver of demand for palladium. Palladium-using petrol-fueled cars are “the primary type sold in the two largest markets of China and the US,” as per the source. So, increased usage of petrol-driven vehicles are contributing to the palladium price rally.

In fact, platinum-using diesel-fueled cars, are actually experiencing market share loss “amid an environmental backlash”, going by the above source. And platinum’s loss is turning out to be palladium’s gain.

Some analysts are now strongly expecting to see palladium prices breezing past platinum prices. If this happens, it would be “the first time since 2001 that palladium is worth more and its relative strength is even more remarkable given that the gap averaged just over $1,000 an ounce between 2007-2012.”

In a nutshell, the global supply outlook appears fragile at the current level, making the metal an intriguing investment option. Below we have highlighted the only pure-play on the metal – PALL – in detail (see all Precious Metals ETFs).

PALL in Focus

For a bullion-backed approach to play palladium, investors can look at ETF Securities Physical Palladium Shares or PALL. The ETF holds the metal in the form of bullion, or ingots. The metal is stored in London and Zurich on behalf of the custodian, JP Morgan Chase Bank.

Investing through PALL in palladium represents a cost-effective and suitable mode for investors. The transaction costs for buying and selling shares will be much lower than purchasing, storing and insuring physical palladium for most investors.

This ETF is designed to track the spot price of Palladium bullion and has amassed about $202.4 million in assets. The expense ratio of 60 basis points appears reasonable in the precious metals ETF space. The fund trades in paltry volumes of about 30,000 shares on average daily basis. The fund has a Zacks ETF Rank of 3 with a ‘High’ risk outlook (read: 5 Commodity ETFs That Bucked the Downtrend in Q1).

Can the Surge Continue?

Though palladium prices are on the rise, the dwindling auto industry of the U.S. may pose threats to the space. The auto industry has been in a tight spot this year with sales declining for the fifth successive month (read: Should You Steer Clear of Auto ETFs & Stocks on Weak Sales?).

Still, investors with a greater risk appetite can exercise this soaring ETF for some more time. The fund has a positive weighted alpha of 47.40. A positive weighted alpha hints at more gains. As a result, there is definitely still some promise for investors who want to ride on this surging ETF.

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