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Here's Why Palladium ETF Is Soaring?

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Thanks to demand/supply imbalance, palladium is enjoying its longest bull run in its history hitting new records lately. In fact. the metal has been defying the global commodities trends, which were being dragged by a strong dollar and global slowdown concerns (read: Best Commodity ETFs of 2018 to Watch Again in 2019).

Inside the Surge

Most of the metal’s rally was prompted by a global shift from diesel to gasoline and hybrid vehicles that has led to higher demand for the metal and resulted in the speculation of supply deficit. Notably, palladium is used to make catalytic converters in gasoline automobiles.

Additionally, cuts in auto tariffs from China boosted demand for the metal. The rally also came amid growing political tensions between the United States and Russia, one of the top producers of palladium, adding to concerns over future supply. One analyst Citigroup believes that palladium shortage will probably persist through 2020, leading to the “tightest” market in two decades.

A recent report from the consultancy Metals Focus stated that 2018 palladium supply is headed for the second-highest level this decade, though auto-catalyst demand remained strong and is expected to hit a record 8.5 million ounces. The consultancy looks for a supply/demand deficit of 1.2 million palladium ounces.

The latest strength came following China’s plan to introduce policies aimed at boosting domestic spending on items such as autos and home appliances this year. This means increased purchase of vehicles, which in turn would spur demand for pallidum.  

If these weren’t enough, palladium forward contracts are in a state of backwardation, wherein later-dated contracts are cheaper than near-term contracts. This signals that the metal market is tightening and demand is robust, paving the way for a palladium rally. This trend is likely to persist at least in the near term, acting as the biggest catalyst for the commodity.

The metals surge pushed pallidum price higher than gold last month for the first time in 16 years. Palladium price is currently hovering around $1,320 while gold bullion is trading below the $1,300 mark (read: Palladium ETF Tops Gold in 2018: Will It Rally in 2019?).

Given the bullish trends, palladium is poised to surge even further and investors could tap this opportune moment with the help of the pure play Aberdeen Standard Physical Palladium Shares ETF (PALL - Free Report) .

PALL in Focus

The fund seeks to match the price of palladium. It owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase Bank. The product has amassed $192.2 million in its asset base and trades in lower volume of about 18,000 shares a day. It charges 60 bps in annual fees and has gained about 25% over the 13-week period. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Precious Metal ETFs here).

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