How The Palladium ETF Can Push Higher Next Year

The strong U.S. dollar is hindering an array of commodities and related exchange traded funds this year.
Palladium and the Aberdeen Standard Physical Palladium Shares ETF PALL did not get that memo.

On Thursday, PALL climbed 1.27 percent, extending its year-to-date gain to 17.68 percent, easily making the palladium fund one of this year's best-performing commodities ETFs.

What To Know

Up nearly 18 percent in the fourth quarter, PALL resides just 4.09 percent below its recently set 52-week high. Palladium's recent surge had the white metal trading at prices higher than gold earlier this month, marking the first time since 2002 that palladium prices topped gold.

“Palladium’s gains this year have overshadowed platinum as well, having overtaken its better-known sister metal last year,” according to Reuters.

Why It's Important

While PALL recently backed off the record highs seen earlier this month, the fund's late-year price action is important because it could be a sign of more upside to come in 2019. The fundamental case for PALL and palladium is bolstered by expectations that palladium demand will once again outstrip supply.

“Shortages of palladium sent prices of the commodity used in autocatalysts to a record this year, at times surging past gold to become the most precious of major metals,” according to Bloomberg. “Citigroup Inc. sees no supply relief soon. Users are borrowing the metal to meet their immediate needs, sending the one-month lease rate to an all-time high of 34.5 percent.”

Russia and South Africa are the world's top two palladium-producing countries. Some analysts expect the supply deficit for the metal to last through the end of 2020.

What's Next

Palladium is widely used to manufacturer catalytic converters for automobiles made in major markets, such as China, the U.S. and Japan. The metal, unlike rival platinum, is also used in the production of hybrid vehicles, potentially opening a long-term demand thesis for PALL.

“This has helped the metal largely ignore falling car sales across the globe, especially in China, the world’s largest auto market, where sales marked a fourth straight month of declines,” according to Reuters.

Year-to-date, investors have pulled nearly $73 million from PALL, but the ETF has seen fourth-quarter inflows of almost $18 million.

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Photo by Jurii/Wikimedia.