What's Driving Palladium ETF Rally?

| About: ETFS Physical (PALL)
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Palladium has been outshining other precious metals in the last couple of months. Last month, the only pure-play on the metal - ETFS Physical Palladium Shares (NYSEARCA:PALL) - clearly outperformed the rest of the precious metal ETFs in the space, namely gold ETF SPDR Gold Trust (NYSEARCA:GLD), platinum ETF ETFS Physical Platinum Shares (NYSEARCA:PPLT) and silver ETF ETFS Physical Silver Trust (NYSEARCA:SIVR). PALL was up 12.9% in the last three months (as of January 6, 2017). GLD, PPLT and SIVR were down 6.7%, up 0.2% and down 5.8%, respectively.

Precious metals had an amazing journey last year on a flight to safety amid global growth concerns as the Brexit vote and the U.S. presidential election led to volatility. Now that market conditions are witnessing a reversal, palladium is clearly emerging as a winner in the precious metals space, thanks to its industrial uses. This makes it a favorite with investors looking to play the recovering economy.

Palladium is mostly used in the automotive industry for manufacturing catalytic converters to clean exhaust emissions. Last year, U.S. new car and truck sales hit record levels. Strong consumer confidence and relatively low fuel prices lifted the industry's outlook.

Meanwhile, President-elect Donald Trump plans to introduce a burst of stimulus with tax cuts and an infrastructure spending package. Speculation is rife that business investments will get a new lifeline now. This could benefit automakers. In addition, tax cuts and higher government spending in the major car markets of China are also expected to boost auto sales.

Moreover, supply shortages are expected to continue this year. The palladium market is expected to post a deficit of 651,000 troy ounces this year and another shortfall in 2017. This is primarily due to rising autocatalyst demand.

In a nutshell, the global supply outlook appears fragile at the current level, making the metal an intriguing option for investors. Below we have highlighted the only pure-play on the metal - PALL - in detail.

PALL in Focus

For a bullion-backed approach to palladium ETF investing, investors can look to ETF Securities Physical Palladium Shares or PALL. The ETF holds the metal in the form of bullion, or ingots. The metal is safely stored in London and Zürich on behalf of the custodian, JPMorgan Chase Bank (NYSE:JPM).

Investing through PALL in palladium represents a cost-effective and suitable mode for investors. The transaction costs for buying and selling shares will be much lower than purchasing, storing and insuring physical palladium for most investors.

This ETF is designed to track the spot price of Palladium bullion and has amassed about $178.2 million in assets. The expense ratio of 60 basis points appears reasonable in the precious metals ETF space. The fund trades in paltry volumes of less than 38,000 shares on average daily basis.

The fund has a Zacks ETF Rank of 3 or 'Hold' rating.

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