Palladium ETF – Exchange Traded Fund
A palladium ETF tracks the precious metal palladium. Buying into a palladium ETF allows equity-like trading and holding of the precious metal. Exchange-traded funds (ETFs) typically offer investors exposure to precious metals but primarily focus on gold and silver. A palladium ETF is a lesser-known option. Palladium is a silvery metal used mostly in catalytic converters. It also has applications in jewelry, electronics, and dental fillings. Palladium and other platinum-group metals, such as rhodium and ruthenium, are somewhat rare. Their rarity keeps their prices relatively high.
There are several exchange-traded funds that invest in palladium. The Aberdeen Standard Physical Palladium Shares ETF is a pure-play palladium ETF. Palladium prices are volatile, largely because the market is small and easily moved by supply-and-demand dynamics.
Supply & Demand Impact Palladium ETF Prices
After almost a decade of being undersupplied, the world is now scrambling to turn up any palladium, according to the Financial Times. The current shortage of palladium in the global markets reflects ongoing supply issues. The production of the rare, white metal remains constrained. Palladium is typically mined as a byproduct of platinum and nickel. Those commodities are not being backed by any new mining projects.
As a result, the boom on the demand side has further constrained the market and propped up prices. Tougher emissions legislation and stricter vehicle-testing regimes are emerging. This is after the disastrous “Dieselgate” scandal in Germany caused the automotive industry to acquire a record 9.7 million ounces of palladium last year, according to Johnson Matthey, a producer of auto-catalysts. Johnson Matthey calculated that demand outstripped supply by 1 million ounces last year. They project a further rise in automotive demand will push the 11.5m ounce-per-year palladium market deeper into deficit.
There are new regulations in China. Beijing is enacting strict mandates to combat growing pollution levels in a quickly industrializing emerging economy. This will require at least 30% more palladium per vehicle, further adding on to an already elevated global demand. There is concern that supply and demand dynamics could be stretched thin. As a result, the market could begin to reflect a surge in rhodium. Rhodium is another major component of catalysts for three-way catalytic converters in automobiles.
Political Pressure Could Influence Palladium ETF Demand
Platinum and palladium saw some renewed interest in November after Democratic President-elect Joe Biden solidified his win, Kitco reports. Economists and market analysts argue that a Biden administration will contribute to tighter environmental regulations and a focus on green energy technology, which may mean tighter regulation on car emissions and increased demand for palladium and platinum in catalytic converters.
“Regardless of the ease with which the new administration can pass climate-friendly legislation from next year, rejoining the Paris agreement will be a clear signal of intent and will likely be followed by moves to improve vehicle fuel efficiency and regulate other pollutants as well as promote green energy. This is likely to be generally favorable to PGMs in emissions control, coming at a time when the auto industry is in the recovery phase and as the rest of the United States follow California’s lead in addressing regulated pollutants and lowering average vehicle CO2 emissions,” Jonathan Butler, precious metals analyst at Mitsubishi, said in a report last month.
Analysts at Metals Focus also argued that fundamentals are in palladium’s favor. The analysts projected the metal to see its 10th annual supply deficit next year.
How to Invest in Palladium – 3 Ways
Palladium-backed exchange-traded funds (ETFs) track the precious metal like an index fund, but trading is done like stocks on an exchange. Examples of palladium ETFs include the Sprott Physical Platinum and Palladium Trust (ARCA:SPPP) and the Aberdeen Standard Physical Palladium Shares (ARCA:PALL).
- The Sprott Physical Platinum and Palladium Trust ETF was created to invest and hold substantially all of its assets in physical palladium and platinum bullion. The trust currently holds 39,065 ounces of palladium and 21,627 ounces of platinum. The portfolio is held in custody at a federal crown corporation of the Canadian government.
- The Aberdeen Standard Physical Palladium Shares is designed to track the performance of the palladium price, less expenses. It holds over 130,000 ounces of palladium in London at a secured vault belonging to JPMorgan Chase & Co. (NYSE:JPM).
Another way of investing in palladium is by holding physical assets directly such as palladium bullion. In fact, financial investors may buy palladium bullion bars, palladium bullion coins, or collectible palladium coins for portfolio growth. This approach may suit investors looking to invest both small amounts of money in the metal and larger quantities of cash.
Investors may also gain exposure to palladium by investing in a palladium-focused business. This method of palladium investing can be tricky — most of the world’s palladium is produced in countries with primary platinum mines. As a result, it’s difficult to gain exposure purely to palladium. Still, there are at least two primary palladium miners in North America: Sibanye-Stillwater (NYSE:SBGL) and North American Palladium (TSX:PDL,OTC Pink:PALDF).
Example – 3 Palladium ETF Funds
Physical Palladium Shares ETF
ETF options for investing in palladium are relatively limited, but the Aberdeen Standard Physical Palladium Shares ETF (PALL) is perhaps the largest. As of March 31, 2020, the fund held more than 131,500 troy ounces at a secured vault in London. PALL fund may be the purest palladium play given that its prices derive directly from the London Platinum and Palladium Market, a major trading center for platinum-group metals. The fund was founded in December 2009 and has returned more than 17% annually since its inception. The annual expense ratio is 0.60%.
Sprott Physical Platinum & Palladium Trust
Like the Physical Palladium Shares ETF, the Sprott Physical Platinum & Palladium Trust (SPPP) also holds physical bullion as opposed to derivative securities. As of March 31, 2020, the ETF held more than 24,000 ounces of platinum and 44,000 ounces of palladium. The ETF has returned 6% annually since its inception in December 2012. Trust unitholders may redeem their units for physical platinum or palladium on a monthly basis if they meet minimum redemption requirements. The fund has an annual expense ratio of 1.29%.
Physical Precious Metals Basket Shares
The Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) invests in a number of precious metals. As of March 31, 2020, the fund held 483 bars of gold, 372 bars of palladium, 191 bars of platinum, and 7,313 bars of silver. The metals are held at a secured vault in London. The fund has been flat since its inception in October 2010. The annual expense ratio is 0.60%.
What Lies Ahead for Palladium
After a surge in 2019, palladium price momentum has shown no signs of a slowdown. The rally has mainly been backed by growing global demand and stagnating supply. “There are few well-established palladium mines” while demand has been on the rise on increased consumption of gasoline engines. The automotive industry, mainly involved in the manufacturing of catalytic converters for vehicles, is a key driver for palladium. Stringent emission control norms have been fueling demand for Palladium-using, petrol-fueled cars as governments around the world look to fight climate change.
Though the metal started the year 2020 on a high note, COVID-induced decline in global car sales and lockdowns hit it hard. “According to a recent palladium price outlook by Heraeus Precious Metals, overall demand is set to contract by 16% to around 252 tons”, as quoted on Capital.com. Still, the metal recovered its loss and moved nearer to the pre-pandemic highs.
Supply is still a concern. Lockdowns in some palladium-exporting countries have caused the supply crunch. “In South Africa, production dropped by a whopping 24%, while in North America, it decreased by 3%. At the same time, palladium mining operations were virtually unaffected in Russia and Zimbabwe. In total, according to Norilsk Nickel (the world’s largest producer, based in Russia), global supply in 2020 will be 14% lower than in 2019,” as quoted on Capital.com.
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