Put simply, it has been a dreadful year for gold bulls as the SPDR Gold Shares (NYSEARCA:GLD) has slid 22.4 percent. The iShares Silver Trust (NYSEARCA:SLV) has been worse. Much worse, actually, with a year-to-date loss of 35.3 percent.
This is how bad things have been for gold ETFs, GLD in particular: GLD has seen outflows of nearly $20 billion this year, according to BlackRock data. GLD now has $38.1 billion in assets under management, which sounds nice, but the ETF was once the second-largest in the world by assets. At best, GLD is now the fifth-largest.
Investors looking for a real winner among precious metals and the corresponding ETFs need look no further than palladium and the ETFS Physical Palladium Shares (NYSEARCA:PALL). PALL is up 3.4 percent this year and has been driven higher by some key differences between the white metal and gold.
"The use of these two metals is quite different. Gold is used primarily for jewelry (43.5% of 2012 demand) and investment (35%), according to World Gold Council. Meanwhile, palladium is used mostly as an auto-catalyst in the catalytic converters of gasoline-powered cars to control exhaust emissions (67%), and secondly in electronics (12%), according to palladium miner North American Palladium," said S&P Capital IQ in a new research note.
Most automobiles produced in the U.S. use palladium in the assembly of catalytic converters. Not all of the top-six holdings in CARZ, a group that combines for roughly 45 percent of the ETF's weight, are U.S.-based, but nearly all of them manufacture cars and trucks in the U.S.
"Analyst Efraim Levy increased his estimate for 2013 U.S. light vehicle sales to 15.6 million, from a prior 15.4 million projection; he forecasts 16 million in 2014. This compares to about 14.4 million in 2012. Levy also expects strong auto demand outside the U.S. Rising prosperity in emerging markets, led by China, should drive global demand growth, partly offset by lower European demand. As more cars are sold, more catalytic converters are produced and more palladium is demanded," said S&P Capital IQ.
Owning PALL has also proven to be a superior choice over being long country ETFs that have mining equity exposure. Russia and South Africa are the world's two largest palladium-producing countries, but rising palladium prices have done nothing to help the major ETFs tracking those nations. The Market Vectors Russia ETF (NYSEARCA:RSX) is down 12.1 percent this year while the iShares MSCI South Africa ETF (NYSEARCA:EZA) has been plagued by tumbling gold prices and has fallen 14.5 percent.
"Russian palladium production has fallen for three straight years. Meanwhile, in South Africa work stoppages and strikes in the mines have caused supply issues and South Africa lost 250,000 ounces, or about 10%, of its 2012 production due to the strikes," said S&P Capital IQ, citing North American Palladium (NYSEMKT:PAL).
In other words, PALL is the best way to go for investors looking for palladium exposure.
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