A Friday surge on above average volume brought the year-to-date gain for the ETFS Physical Palladium Shares (NYSEArca: PALL) to nearly 11%. Palladium’s strength is also helping the iShares MSCI South Africa ETF (NYSEArca: EZA).
EZA, the largest exchange traded fund tracking Africa’s second-largest economy, is up more than 4% since the start of 2017. South Africa is the world’s largest platinum producer and the second-largest palladium miner behind Russia.
Some analysts also believed that palladium could continue to shine as tightening market conditions will continue through 2018. Traders have increased positioning in future market as automobile sales hit record highs, especially with rising automobile sales in China.
Along with its safe-haven link in the precious metals space, palladium is also more sensitive to economic cycles and enjoys heavy industrial demand, notably out of the automobile industry where the precious metal is used as an autocatalyst to remove harmful emission particles. China and the U.S., the world’s two largest automobile markets, use palladium in the production of catalytic converters.
Rising palladium prices could stave off trouble for South Africa. There are lingering concerns that one or more of the major credit ratings agencies would downgrade South Africa’s sovereign debt rating to junk status. Concerns about South Africa’s sovereign credit rating are once again in focus.
Last year, Standard & Poor’s reiterated a BBB- rating, the lowest investment-grade rating, on South African sovereign debt. In May, Moody’s Investors Service surprised global investors by actually upgrading its rating on South Africa to two levels above junk territory.
“The support which was broken in June 2015 is now acting as a major resistance. More than twice it has tried to break these levels but failed to do so. In case it breaks this resistance then the next hurdle will be around $800.00 and $830.00 price range. If the price doesn’t break, the present resistance levels then one can expect it to come around the major support which is at $670.00 to the $680.00 per troy ounce,” according to an HSBC note on palladium posted by Johanna Bennett of Barron’s.
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.
For more information on the South African markets, visit our South Africa category.
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