Palladium Shifts Into High Gear [ETFS Physical Palladium Shares, Sprott Physical Platinum and Palladium Trust]

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July 14, 2014 12:42pm NYSE:PALL NYSE:SPPP

PalladiumDid you hear the boom? The price of palladium just crashed through overhead resistance and soared to a 13-year high. In fact, palladium is outperforming

all the other precious metals so far this year.

Sure, gold, silver and platinum are doing well. But palladium is shifting into high gear. Just look at this chart.

Palladium leads the pack, with a 19.4% gain since the start of the year.

predicted on November 7 that palladium was gearing up for a bullish run. And the supply/demand problems I talked about then are getting even tighter!

Palladium was supported recently by a prolonged labor strike in South Africa, the world’s No. 1 producer.

The strike lasted five long months, cut nearly a third of South Africa’s annual output of the metal and ate away at palladium stockpiles around the world.

So with the strike over, prices should go down, right? Ah, it’s not that simple.

Car Sales Drive Palladium Demand. Palladium is an industrial metal as well as a precious metal. That’s because it is a major component in catalytic converters, which account for 68% of all palladium demand.

When I wrote my original piece on palladium back in November, I said “Hard-pressed consumers put off buying cars for too long, and now they’re dumping their clunkers and buying new wheels.”

Well, sure enough, auto sales are accelerating… faster and faster!

In fact, in June, U.S. car sales rose 1.2% to 1.4 million. Annualized, that would push the selling rate to 16.98 million – the fastest pace since 2006.

And automakers sold 8.2 million total vehicles in the U.S. in the first half of 2014. That’s up 4.3% over the same year-ago period.

Car sales are booming globally as well. China saw its passenger-vehicle sales rise 14% in June. And for the first six months of 2014, China’s car sales rose 11% to 9.09 million units.

That’s a lot of palladium demand.

Investment Demand Is Surging. In fact, investor demand is gobbling up millions of ounces of palladium from the market as ETFs make it easier than ever to invest in the metal. This type of demand is relatively new in palladium compared to gold.

Palladium ETFs saw 844,000 ounces of net inflows in the first half of 2014. Total holdings in palladium ETFs were recently just under 3 million ounces. That’s more than the annual production of Russia, the world’s No. 2 palladium producer.

We know that ETFs can buy and sell into a market, whipsawing prices. But for now, however, demand for palladium as an investment is up, and that’s pushing up prices.

Strike May Not Be Over. The strike in South Africa was hard on both sides. Its resolution added about 8% to the cost per ounce of palladium. So no one would ever want to do something like that again, right?

Well, now there is another mine-worker strike in South Africa. This strike isn’t in the palladium mines – yet. But the fear is it will spread. And if it spreads to the palladium mines, prices could really take off.

Bottom Line: Palladium Should Shine

There are only about 8.6 million ounces of palladium produced every year.

The palladium supply deficit is expected to widen to a Grand Canyon-esque 2 million ounces this year. And that’s up from estimates made just a month ago of 1.6 million ounces.

So can prices go higher from here? Yes!

An easy way to play this trend is by investing in funds that hold physical palladium. Two examples:

  • ETFS Physical Palladium Shares (NYSEARCA:PALL) holds the physical metal. It has average daily volume of 64,000 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 137,000, and total annual expenses are 0.85%.

Good investing,

by Sean Brodrick, Resource Strategist

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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