Of the four largest exchange traded funds backed by physical holdings of each of the four major precious metals, just one could muster a 2013 gain.
Comprised of the SPDR Gold Shares (NYSEArca: GLD), iShares Silver Trust (NYSEArca: SLV), ETFS Physical Platinum Shares (NYSEArca: PPLT) and the ETFS Physical Palladium Shares (NYSEArca: PALL), the group was led in 2013 by PALL. The trend is repeating again this year with PALL already up 4.3%, enough make the best of the four aforementioned ETFs, though PALL’s lead over PPLT is narrow. [Commodity ETP Assets Plunge in 2013]
Palladium has proven sturdy do in part to strong fundamentals that include robust global auto demand. The white metal is a key component in the production of catalytic converters in automobiles manufactured in China and the U.S., the world’s two biggest auto markets. That durability could be a harbinger of an imminent breakout. [Palladium ETF Poised for More Upside]
“There is one chart that really really stands out to me. And that is the weekly chart of Palladium,” writes J.C. Parets of Eagle Bay Capital. Parets notes that palladium’s all-time, set in 2001, is around $1,100 an ounce, “That’s currently 50% above today’s prices. I like that, it gives us plenty of room. But also notice this pattern of converging trendlines that’s developed over the last couple of years since that 2011 decline.”
Chart Courtesy: thechartstore.com via J.C. Parets
Last month, ETF Securities said palladium is among its top commodities picks for 2014, citing a large supply deficit, dwindling Russian stockpiles and increased Chinese and U.S. auto demand, so there is a fundamental story at play here as well. [ETF Securities 2014 Commodity Outlook]
Parets adds that palladium futures have tested resistance created by a downtrend line dating back to 2011 five or six times.
“In my experience, the more times that a level is tested, the higher the likelihood that it breaks. I think it happens soon and our confirmation would be when prices take out last year’s highs,” said Parets.
In addition to improving auto demand, there are other fundamental factors to bolster the technical case highlighted by Parets. The palladium market is widely expected to be in deficit again this year, a situation that could be exacerbated by the debut of a palladium ETF in South Africa. All of the palladium in that ETF must be produced in that country, as stipulated by regulators there.
Speaking of South Africa, the country is the world’s second-largest palladium producer. Any labor strife in the mining industry, something that has happened before, would likely boost palladium prices.
ETFS Physical Palladium Shares
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.