Palladium prices are on fire as the metal encounters a perfect storm of growing industrial and investment demand.
Auto industry demand is growing mostly thanks to China:
Certainly Palladium’s rise has been dramatic this first quarter of 2010, from starting the year at about $420/ounce the London Fix has risen to over $540/ounce this week, a near 30% increase.
There have been a number of factors in palladium’s favour driving up the price. First, the fundamentals have been sound, due to its much lower cost than platinum the metal has been partially substituted for platinum in the mix of PGM’s used in automotive catalytic converters, particularly in diesel engines. In a recent note to investors, Standard Bank advised global auto sales are still on the rise, and China remains in the lead.
But more importantly, new ETF’s have created a whole new source of investment demand, which has caught the market off-guard especially since 80% of the world’s palladium right now comes from just two sources, South Africa & Russia.
The most popular form of investment are Electronic Traded Funds such as the new ETF Securities physically backed palladium ETF launched earlier this year. The Telegraph article quotes RBS in saying the inflow of money into palladium ETFs worldwide was equivalent to 28% of estimated palladium consumption in the first quarter of the year. The launch of the new US fund has resulted in the amount of palladium held as an investment to rise 48% over the quarter.
So here’s a profitable investment strategy. Invest in a rare commodity that doesn’t have an ETF yet, then create the ETF. It worked with gold, whose rapid rise has tracked growth in ETF-driven demand, and it now seems to be working with Palladium. What’s next? Uranium? We don’t know of any pure uranium ETFs yet (though there is a nuclear ETF (NLR) that invests in nuclear power related companies).
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