The popularity of commodity ETFs has helped catapult palladium prices to new heights, but the use of the nifty and readily accessible ETF investment tool could leave the precious metal vulnerable to any shifts in the fund.
Palladium futures for April delivery hit $547.50, a two-year high, on Wednesday and June futures, which are most actively traded, diminished to $545.90, but is still up 33% year-to-date, reports Matt Whittaker for The Wall Street Journal.
There are five active palladium ETFs around the world backed by the physical metal. When a share in an ETF is added, a certain amount of palladium is stored away in a warehouse. This means that if investors start selling the ETF, the supply of palladium in the metals market goes up, which would pressure prices. As of April 9, more than 1.7 million ounces, or about a third of annual global consumption, of palladium were held by the physically-backed ETFs.
Jon Nadler, an analyst with bullion dealer Kitco Metals, believes that palladium could trade upwards of $650 an ounce in the short-term, but it is more likely to remain around $475 to $575 an ounce. Miguel Perez-Santalla, vice president of sales and marketing at metals processor Heraeus Precious Metals Management, believes investors would sell if palladium hit the $600 dollar mark, noting that prices are starting to go above the fundamentals of demand.
Rising car sales and improvements in manufacturing around the world have indicated that demand from end users remains strong, further pushing palladium prices up. Palladium used for autos and industrial purposes can disappear from the markets for years before being brought back through recycling.
Russia has usually capped prices of palladium through sales from their stockpiles, but Russia has been relatively inactive, which has fueled speculation that Russia doesn’t have much left, another bullish factor for the metal.
- ETFS Physical Palladium (PALL)
Max Chen contributed to this article.