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Palladium is one of the most popular niche commodities and can be considered an extremely lucrative investment avenue. In 2012, the metal experienced a huge fall in its price attributable to weak demand in the auto industry and sluggish jewelry demand (Platinum ETF Investing 101).
But heading into 2013, the price of the metal is expected to appreciate. The reason is that the metal is going through a supply deficit attributable to the labor dispute in South Africa and production cuts made in the country due to higher labor and other factors which make their palladium mines unprofitable.
On the other hand, stockpiles from the biggest producer of the metal, Russia, are diminishing leading to a further deficit of the metal. Palladium production outages may result in highest supply deficit since 2000 (Why you don’t need both palladium and platinum ETFs).
Conversely, with a rebound in the auto industry, the demand for the metal remains steady. Palladium is used in auto catalytic agents, which scrub emissions from automobiles.
A major portion of the production of palladium is utilized in such catalytic converter fabrication, which is a key input in automobile manufacturing. Increase in vehicle demand has therefore stimulated palladium demand significantly (Precious Metal ETFs: Beyond Gold).
Palladium use by the automotive industry has consequently gained from higher demand for vehicles in the U.S. and the emerging world. Also consumption of palladium in cell phones and computers and jewelry should further provide a boost to the demand for the metal.
With demand for palladium rising in the auto industry and supply at an all-time low, price of the metal may be primed to shoot up going forward. Amid expectation of higher price for the metal, this could be the right time to invest in the metal and investing through ETFs makes it even more lucrative thanks to low bid ask spreads and minimal expense ratios (Top Three Precious Metal Mining ETFs).
With the auto industry expected to remain robust globally going further and demand for the metal and consequently its price on the rise, investors may be able to take advantage. For those who are willing to go long in palladium, the following ETF option is available:
ETF Securities Physical Palladium Shares (PALL)
For a bullion-backed approach to palladium ETF investing, investors can look to ETFs Physical Palladium Shares or PALL. PALL is the ETF which is backed by physical metal and holds the metal in the form of bullion, or ingots. The metal is securely stored in London and Zürich 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 the shares will be much lower than purchasing, storing and insuring physical palladium for most investors (Has The Junior Gold Mining ETF Lost Its Luster?).
This ETF is designed to track the spot price of Palladium bullion. PALL is the most liquid option available in palladium ETF space, trading with volumes of 56,200 shares a day and it has $500 million in assets under management.
The expense ratio of 60 basis points also appears to be at par with other ETFs in the precious metals space, although it is obviously higher than what we see in the much more popular gold market. Still, we give the product a Zacks ETF Rank of 2 or ‘Buy’ meaning that we are rather bullish on the metal overall in 2013.
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