Back to top

Image: Bigstock

Palladium & Platinum ETFs on a Tear: Will the Surge Continue?

Read MoreHide Full Article

By now, the precious metals rally is known to all. The most popular precious metal, gold, initiated this momentum spurred by safe haven demand and dovish central banks across developed economies. Plus, a favorable demand-supply scenario favored metal investing to a large extent. A subdued greenback also helped all precious metals as these are linked to the U.S. dollar (read: Top and Flop ETFs of 1H).

The Chinese market rout and a 13-year low oil price at the start of the year instigated a flight to safety while Brexit at the end of Q2 and a still-shaky global market backdrop have still kept risk-off trade sentiments alive. In fact, the lure for low volatility products is steady after the U.S. indices hit all-time highs several times to start Q3 (read: Low Volatility ETFs in Vogue Despite a Bull Market).

Is Palladium the Best Precious Metal Bet Now?

The interesting fact is that after gold, other precious metals including silver, palladium and platinum joined the party.

Palladium futures soared to an about 14-month high lately. The metal logged its largest one-month price gain in eight-and-a-half years in July with several factors backing it.

First, Palladium is used as catalytic converters which put a lid on unsafe emissions from cars. Now, China’s passenger-vehicle sales grew the most in 17 months and hinted at surging demand for palladium from the auto sector.

Second, analysts also believe that after gold’s stupendous rally so far this year, traders may be trying “something new and exciting. Maybe investor psychology has humans convinced that if they buy something not so mainstream, maybe they’ll make more money.”

As per, “Palladium supplies are expected to fall by 4% worldwide” while the demand profile is likely to increase 3%.

What About Platinum?

Platinum peaked to a 17-month high on August 10. Here also, the automobile industry alone is responsible for about 40% of the world's platinum demand and thus explains why platinum prices are surging. Also, platinum is extensively used for jewelry purposes (read: After Gold, is it Turn for Platinum ETF to Shine?).

As per an analyst, demand for platinum will likely pick up in India in 2H of 2016 as demand among young buyers are rising given a 10–12% price gap with gold. With extremely low platinum prices (at the current level) and rising gold prices, the spread between two metals is falling and is thus opening a buying opportunity for consumers.

MMoreover, as per an article published in Bullion Vault, platinum supply is expected to decline 3% year over year this year.

Inside Soaring Prices

In the last four-week period (as of August 10, 2016), ETFS Physical Palladium Shares ETF (PALL - Free Report) topped the precious metal ETF list. PALL added 12.4% in this timeframe followed by 8.6% gains seen in ETRACS CMCI Long Platinum Total Return ETN while X-Links Silver Shares Covered Call ETN (SLVO - Free Report) returned about 1.6% and X-Links Gold Shares Covered Call ETN (GLD - Free Report) I) was up about 1.1% (read: Best ETFs of July).

Can the Surge Continue?

On August 10, 2016, PALL hit a 52-week high, gaining about 4.5%. Sprott Physical Platinum and Palladium Trust (SPPP - Free Report) also touched this level, having added about 3.3% on August 10, 2016.

Investors should also note that PALL has a positive weighted alpha of 29.20 and SPPP has a positive weighted alpha of 30.40. A positive alpha indicates that these surging products can be exercised a little further. Since palladium is still lagging silver and platinum form the year-to-date look, the metal still has room for growth.

Separately, ETFS Physical Platinum (PPLT - Free Report) gained over 6.9% in the last one month (as of August 10, 2016). At present, the fund has a positive weighted alpha of 27.92.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in