Palladium, Platinum ETFs Have Tailwinds

May 15th at 11:37am by Tom Lydon

Over the past 90 days, the ETFS Physical Platinum Shares (NYSEArca: PPLT) and the ETFS Physical Palladium Shares (NYSEArca: PALL) are higher by 5.2% and 13.5%, respectively.

During the same period, the SPDR Gold Shares (NYSEArca: GLD) is up just 1.1% while the iShares Silver Trust (NYSEArca: SLV) is lower by 2.2%. Recent inventory drawdowns and an ongoing global economic recovery are catalysts that could continue lifting PALL and PPLT going forward. [Platinum ETFs Shine]

“Platinum Group Metals (PGMs) have begun 2014 on a positive note, with platinum gaining 7% and palladium up 14%. While most of the price support of the past few months has been due to supply disruptions in South Africa and fears of trade sanctions being imposed on Russia, a recovery in demand is fundamental for gains in PGMs prices to be sustained,” said ETF Securities research analyst Simona Gambarini in a note out Thursday.

Sanctions against Russia and labor strife in South Africa have been frequently cited catalysts for palladium’s 2014 surge because the two countries are the world’s two largest producers of the metal. Palladium was forecast to be in deficit this year and that was prior to Russia’s invasion of Ukraine, which prompted economic sanctions from the west.

Palladium prices have also been boosted by improving global auto sales. Increased auto demand has PALL trading at its highest levels in nearly three years. [Palladium ETFs Soars to Multi-Year High]

“The extensive use of platinum and palladium in vehicle catalytic converters makes their demand particularly sensitive to economic, industrial and market conditions at global level. Auto sales in the US, China and Europe, the three biggest regions by consumption, have shown signs of improvement, with combined sales up 6% in Q1 2014 on the previous year,” said Gambarini in the note.

Labor strikes in South Africa have entered a 17th week, costing the country 750,000 ounces in lost platinum production and 550,000 ounces of lost palladium output, according to ETF Securities.

The iShares MSCI South Africa ETF (NYSEArca: EZA), which allocates 11% of its weight to the materials sector, has managed a three-month gain of 16% despite the labor violence. [South Africa ETF Impresses]

“We remain positive platinum and palladium price fundamentals in the long run. Although both markets have become a lot tighter over the past months, we believe the catalyst for a sharp rally would be for one of the top 3 producers (Amplats, Implats and Lonmin) to fail to meet all contractual obligations or to announce active metal buying on the open market to supply its contracts,” said Gambarini. “While we acknowledge that PGM prices could be subject to a correction if the heightened risks in the Crimean region and prolonged strikes in South Africa fade or disappear, we believe the downside risk is fairly limited.”

ETFS Physical Palladium Shares

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ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.

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.