Palladium ETF Shines While Gold Struggles

July 22nd at 8:50am by Tom Lydon

Exchange traded funds backed by physical gold holdings have been less bad in recent weeks. The ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) is a fine example. Since touching its June low on June 27, SGOL is up almost 8%.

The bullion-backed ETF was also set for a higher open on Monday as gold prices climbed above $1,300 an ounce.

Palladium has been even better, which is not surprising because as gold and silver ETFs have been severely punished this year, the ETFS Physical Palladium Shares (NYSEArca: PALL) has proven sturdy with a 5.5% gain. PALL was unable to withstand the May/June plunged that plagued precious metals, but the fund’s rebound and encouraging fundamental factors could cement it as the best way for ETF investors to play precious metals for the rest of 2013. [Gold ETFs Still Bleeding Cash]

Since its June bottom, PALL has surged 15.1%, a gain that is obviously better than comparable gold ETFs, but also far ahead of the equivalent platinum and silver funds. Robust auto demand is helping jolt PALL to the upside. As consumer confidence and the U.S. economy improves, pent-up demand has helped fuel auto sales, which could also support PALL through the back half of this year. [Higher Car Sales Could Palladium ETF]

Although the white metal has recently notched a stellar run, more upside could be had. Citigroup calls palladium its “favored metal within the precious metals space,” and in a note published last week, the firm predicted that palladium prices may average $850/oz in the fourth quarter of 2013, reports Johanna Bennett for Barron’s.

A price of $850 per ounce implies upside of $100 an ounce from palladium’s current levels. The last time palladium trade anywhere close to $850 was late June 2011 when it flirted with $834 an ounce. By late July 2011, PALL was trading about $10 higher than where it currently resides.

Investors looking for equity plays on rising palladium prices can consider the iShares MSCI South Africa ETF (NYSEArca: EZA). South Africa produces 36% of the world’s palladium, second-most behind Russia. In the past month has PALL has risen, EZA has climbed 6.1%.

The risk with opting for EZA as a palladium play is two-fold. First, South Africa is also a major gold producer and EZA can, at times, take its cues from price action in gold. Second, South Africa has been home to numerous instances of labor unrest at its precious metals mines over the past few years. Those mining strikes often lead to short-term increases in palladium prices because traders perceive supply as being threatened, but not being able to bring supply to market weighs on the mining stocks found in EZA.

ETFS Physical Palladium Shares

 

ETF Trends editorial team contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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