Palladium Is Outperforming the Other Precious Metals

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November 11, 2013 11:53am NYSE:PALL NYSE:SPPP

Palladium: Precious metals are on sale. And one of them – palladium – looks like it’s poised to shine this holiday season. Here are three reasons why… and three great ways to play it.

1. Palladium Is Outperforming the Other Precious Metals

I think all the precious metals have found their bottoms for the year. And if I’m right, then you can buy them on sale without a lot of worry that they’ll tumble much further.

But palladium is outperforming the others. Just look at this chart comparing the recent price performance of ETFs holding physical gold, silver, platinum and palladium.

The metals rallied nicely in October. Then renewed fears that the Fed would “taper” its quantitative easing program sent gold and silver sliding again. I think those fears are overdone. But the point is, palladium and platinum are holding up quite nicely.

2. Industrial Demand Is Revving Palladium’s Engine

Palladium is a major component in catalytic converters, and global auto sales have been in the fast lane all year.

Hard-pressed consumers put off buying cars for too long, and now they’re dumping their clunkers and buying new wheels.

Total October U.S. auto sales came in at about 1.23 million passenger cars and light trucks. That’s up 12% from about 1.09 million a year earlier.

That puts car sales for the year on track to hit 15.4 million units, up from 14.3 million last year.

But what about China, the world’s largest car market? It saw its auto sales rise 21% year over year in September, which put it on track for a total 20 million units sold in 2013.

And you better buckle in. Worldwide car sales are expected to accelerate even more next year! Bloomberg reports that global car sale growth is expected to upshift to 4.8% next year from 2.7% this year.

The auto industry accounts for 68% of palladium demand. (Platinum goes along for the ride, with 65% of total platinum demand coming from the auto industry.)

3. Palladium Supply Deficits Are Expected

Palladium demand will exceed output by 1.33 million ounces in 2013. There were only 8.55 million ounces of palladium mined last year.

Palladium mine supply has been declining by an annual rate of 2% since 2007. Ore grades are declining. Finally, Russia has the only real palladium stockpiles, and they are depleted.

Add it all up, and you can see why palladium is showing strength against gold and silver. It’s a trend that should continue into the end of the year, and perhaps well into 2014.

How You Can Play This Trend

A couple of funds hold physical palladium:

  • The ETFS Physical Palladium Shares(NYSEARCA:PALL) is an easy way to trade palladium. Like the name says, it holds the physical metal, and tracks the price of it nicely. It has average daily volume of 54,120 shares and charges a 0.49% yearly fee. If you’re in it for a short-term trade, that’s a good way to do it.
  • Sprott Physical Platinum and Palladium Trust(NYSEARCA:SPPP) holds both platinum and palladium bullion. It has average daily volume of 121,000, and total annual expenses are 0.85%.

And if you want to own the physical metal, there’s nothing wrong with that. Just recognize that storing physical metal comes with its own set of headaches. Be sure to lock it in a secure place.

Remember that if you buy, buy the dip. Don’t chase anything.

Good investing,

by Sean Brodrick, Resource Strategist, The Oxford Club

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.

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