Palladium has seen a strong run this year on demand/supply imbalance despite weakness in the global auto sector. The rally strengthened with the metal hitting a series of new highs lately, topping $1,900 per ounce for the first time ever. In fact, the metal has climbed for 13 consecutive days, representing the longest stretch since mid-2014. With this, palladium has risen nearly 50% so far this year.
Global Commodity Trends
The latest gain was brought in by tight supply conditions due to production problems in South Africa, the world’s second-largest palladium supplier. This is because South African mining companies halted operations for the sixth consecutive day in response to the country’s largest power blackouts in more than a decade. Harmony Gold (NYSE:HMY) , Impala Platinum, and Sibanye-Stillwater all are being forced to cut production.
One of the market participants said that palladium has been in deficit for the past seven years and will continue to be so in 2020 and 2021. While supply remains limited, demand has been strong owing to its large consumption in the auto sector (read: Will Palladium ETF's 2019 Rally Continue Next Year?).
This is because a global shift from diesel to gasoline and hybrid vehicles has led to higher use of the metal and resulted in speculation of supply deficit. Notably, palladium is used to make catalytic converters in gasoline automobiles that reduces emissions. Additionally, increasingly stringent regulations to crack down on pollution from vehicles globally are pushing up demand for palladium in autocatalysts for gasoline-powered cars. Notably, China, the biggest auto market, has boosted the metals’ value even more as all cars manufactured from 2020 will contain around 30% more palladium.
Given the limited supply and strong global demand, one analyst at Citigroup (NYSE:C) expects palladium prices to jump to $2,500 by mid-2020.
Other Factors
Apart from supply/demand dynamics, global easing monetary policies are acting as a tailwind for the commodity. The Fed has cut interest rates three times this year, keeping the U.S. dollar under pressure. A weak dollar makes dollar-denominated assets attractive for foreign investors, raising the appeal for commodities.
Moreover, safe-haven demand due to trade gyrations and geopolitical tension is also facilitating the rally in this precious metal (read: Is Trade Scaring You? ETF Strategies for 2019 Holiday Season).
That said, 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.
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 (NYSE:JPM) Bank. The product has amassed $289.5 million in its asset base and trades in lower volume of about 23,000 shares a day. It charges 60 bps in annual fees and has gained about 50.4% in the year-to-date timeframe. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (see: all the Precious Metal ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
Harmony Gold Mining Company Limited (HMY): Free Stock Analysis Report
Original post
Zacks Investment Research