Investors Fleeing Palladium ETF

Oct.13.11 | About: ETFS Physical (PALL)
Back in late June, I wrote an article, “Investors Flocking To Palladium, Platinum ETFs.” But for palladium, there has been a sharp reversal in that trend as the price of palladium is down 17% since then, with platinum down about 8%.

According to Johnson Matthey’s September price report (PDF):

After holding up reasonably well, palladium ETF holdings turned sharply downward in the middle to late part of the month, keeping net ETF investment in the year to date in starkly negative territory. Palladium futures positions on NYMEX declined by over 300,000 oz in the first three weeks of September: liquidations were around a third higher than for platinum.

I took a look at the number of ounces in both the Securities Physical Palladium ETF (NYSEARCA:PALL) and the Securities Physical Platinum ETF (NYSEARCA:PPLT). Here are the charts.

The reason the number of ounces is “approximate” is that a share of each ETF is supposed to represent 1/10 ounce of each metal, but it’s actually slightly less because of expense fees.
And here’s a look at each ETF in terms of assets under management along with a price chart for each metal.

Futures: Open Interest Falling
As Johnson Matthey pointed out in its price report, palladium futures positions have indeed declined as this chart shows.

Where do palladium prices go from here? In another article I wrote on palladium and platinum, Running Wolf said he was looking to buy palladium at $650 and wondered whether it would get into “the 500s.” (Back then palladium was in the 700s.)
I was inclined to think palladium would not fall that far, but of course I was wrong. However I do hope that Running Wolf is taking advantage of this pullback because I am still bullish on palladium (and platinum, too).
There are few, if any, substitutes for these metals as autocatalysts. As we’ve seen in the past, supplies can get extremely tight. In my view, all it will take is a slight uptick in demand – and perhaps a lower U.S. dollar – to send prices higher again.
Disclosure: I am long PALL, PPLT.