Traders have taken a shine to palladium and platinum, along with related ETFs, as rising industrial demand in a growing global economy help support prices.
Among the largest contributors of industrial demand, robust global auto sales fueled greater demand for the precious metals as part of catalytic converters to diminish harmful gas emissions. About 40% and 75% of annual demand for platinum and palladium, respectively, apply to autocatalysts in combustion engines.
“Despite concerns for US, global auto sales remain robust led by higher emission standards in China,” Maxwell Gold, Director of Investment Strategy at ETF Securities, said in a research note.
Some naysayers point to the growth of electric cars as a big risk to autocatalyst demand. Gold, though, argued that slowing sales growth, infrastructure build out and battery shortfall risks in the electric car industry will drag on this segment and leave more room for autocatalyst demand.
Other critics also contend that the popularity of ride sharing platforms indicate a peak in auto demand, which may reflect the weak U.S. auto sales among the Millennial demographic favoring a sharing based economy. This trend may actually spur higher total miles driven and reduce average vehicle lives. The shifting demand to higher total miles driven could potentially reshape the cyclical nature of the industry.
Gold projects a strong outlook for the platinum market, despite falling share for diesel vehicles in Europe.
“Platinum has many factors supporting a positive outlook including higher gold prices, stable South African Rand, rising global industrial production, and anticipated higher Chinese demand for diesel ahead of tougher emission standards,” Gold said.
Palladium has also enjoyed a strong rebound this year, and investors have been a major factor to the trend.
“A key factor is the continued physical deficit driven by rising demand and weak mine supply,” Gold said. “Above ground supplies such as exchange-traded funds continue to be sourced to meet demand, with tightness in the palladium market sparking 3 month lease rates to surge over 20% in June. Despite attractive fundamentals and performance, investors remain absent. If investors begin to move into the market, prices may move higher creating a new leg in the current rally.”
Investors interested in gaining exposure to the two precious metals may look to physically backed commodity-related ETFs, like the ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL).
For more information on the metals market, visit our precious metals category.