There has been plenty of talk this year regarding struggling commodities, but do not tell that to the ETFS Physical Palladium Shares (NYSEArca: PALL). Up nearly 5% over the past week, PALL is higher by more than 29% year-to-date, making it one of this year’s best-performing commodities ETFs.
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.
“Palladium jumped 7% on Friday alone, spurred by co-called backwardation in the market. Backwardation is a phenomenon in commodities where the futures prices for an asset are below the spot price, which normally causes a sharp short-term rally,” reports ETF Daily News.
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.
“The background for palladium is for good industrial demand and likely a significant market deficit this year, and on top of course you’ve got this speculative squeeze,” Mitsubishi analyst Jonathan Butler said, reports Reuters.
President Donald Trump has promised lower taxes and increase spending, which could further propel consumer demand for automobiles and support higher palladium prices.
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.
“Traders reported a reluctance to lend the metal, suggesting tightness in near-term supply. Chart patterns indicate that the metal is vulnerable to a sell-off from these elevated levels, however, technical analysts said,” according to Reuters.
Palladium supply is expected to be in a deficit this year, marking the sixth straight year the metal has been in a deficit.
For more information on the palladium market, visit our palladium category.