The ETFS Physical Palladium Shares (NYSEArca: PALL) jumped 4.6% Friday after surging 51.2% over the past year and strengthening 10.7% year-to-date.
Maxwell Gold, Director of Investment Strategy at ETF Securities, in a note argued that palladium’s rise has been driven by a very strong outlook for continued global auto sales in 2017.
U.S. auto sales for 2016 revved up on declining gas prices, rising employment and low interest rates, marking the industry’s seventh successive year of sales gain.
According to Scotiabank, auto sales are expected to hit another record in 2017 for the eighth consecutive year on rising demand in emerging markets and from those in the U.S. seeking to replace older vehicles as stronger global economic growth and low gas prices help support consumer demand.
“Strong global auto sales expected this year,” ETFS’ Gold said. “Palladium is a key component in gasoline engine autocatalysts, which are widely used in US and Chinese markets.
Unlike gold, palladium enjoys heavy industrial demand, notably in the automobile industry, which may also help bolster palladium prices as we head toward the end of the business cycle.
“Given palladium’s demand is most sensitive to the industrial production cycle, palladium may see further support along with industrial metals in anticipation of a rise in US infrastructure spending and recovery in global growth.”
Meanwhile, palladium is also seeing supportive supply dynamics.
“Global palladium supply deficits have persisted since 2012, making palladium’s fundamentals very supportive for prices,” Gold said. “Deficits are expected to persist for 2017 and beyond with forecasts from Johnson Matthey of a 651,000-ounce deficit in 2016; this should add further support to palladium. Expected continued supply deficits, growing demand, and drawdowns in above-ground stocks have kept the market balance for palladium favorable.”
For more information on the palladium market, visit our palladium category.