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Palladium ETF Tops Gold in 2018: Will It Rally in 2019?

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Palladium prices have been on a tear of late. The pure-play palladium ETF Aberdeen Standard Phys PalladiumShares ETF (PALL - Free Report) is up more than 27.1% in the past three months (as of Dec 4). The rally was backed by growing global demand and stagnating supply.

The metal rallied at a speed that it surpassed gold on Dec 5 for the first time in 16 years. Prices jumped from around $832 an ounce in mid-August to a high of $1,263.56 per ounce on Wednesday. Meanwhile, gold is near $1,235, thanks to a rising greenback. This year, PALL is up 12.3% while SPDR Gold Shares (GLD - Free Report) is down 6.4%.

Below we highlight a few reasons that have helped palladium to oust gold from the position of the king of metals.

High Demand From Auto Industry

Notably, the automotive industry, mainly involved in the manufacturing of catalytic converters for vehicles, is a big driver for palladium. A jump in new car registration in some parts of the globe   drove palladium prices (read: Trump-Jingping Truce to Boost These ETFs).

Also, Palladium-using petrol-fueled cars are “the primary type sold in the two largest markets of China and the US,” per the source. So, increased usage of petrol-driven vehicles has a role in driving the price of palladium.

In fact, platinum-using diesel-fueled cars are actually experiencing market share loss “amid an environmental backlash,” going by the above source. Diesel vehicles have fallen out of investors’ favor since the Volkswagen emissions scandal erupted in 2015. And, platinum’s loss is turning out to be palladium’s gain.

Demand Outshines Supply

While supplies from major producers, including Russia and South Africa, are not growing (per analysts), demand has been on the uptrend due to increased consumption of gasoline engines.The consultancy Metals Focus recently noted that 2018 palladium supply is on its way to the second-highest level this decade, but even higher demand led the consultancy to project a supply/demand deficit of 1.2 million palladium ounces.

China Seeks to Boost Domestic Demand

Investors should note that China has long been working on stepping up domestic consumption, reducing focus on exports and moving to a ‘slower and more balanced growth’ economy. This is especially true given the trade tensions between China and the United States.

Per an article published on Wall Street Journal, analysts believe that the Chinese government’s intension to boost domestic growth has led to a rally in the overall metal market. Along with palladium, nickel and copper registered considerable increases in recent months.

Will Palladium Rally in 2019?

Having said that, we would like to note that the future rally for palladium is uncertain. First of all, given the recent selloff in Wall Street and uncertainty about global growth, the Fed may slow down the speed of policy tightening. This in turn will weigh on long-term treasury yields and the greenback, which once again will brighten non-interest bearing safe-haven as well as beaten-down asset like gold.

Moreover, after such a stupendous rally in palladium, investors will definitely try to book profit, which in turn will put a check on the palladium uptrend. Plus, there is increasing adoption of electric vehicles (EVs) which could lead to declining demand for both platinum and palladium in auto-catalysts, per an article published on Reuters. So, there is high chance that gold will regain lost ground in 2019, overriding palladium (read: Are Gold Prices Bottomed Out && Up for Rebound? ETFs in Focus).

 

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