Palladium And Platinum ETFs On A Tear: Will The Surge Continue?

London (Aug 12)  By now, the precious metals rally is known to all. The most popular precious metal, gold, initiated this momentum spurred by safe haven demand and dovish central banks across developed economies. Plus, a favorable demand-supply scenario favored metal investing to a large extent. A subdued greenback also helped all precious metals as these are linked to the U.S. dollar.

The Chinese market rout and a 13-year low oil price at the start of the year instigated a flight to safety while Brexit at the end of Q2 and a still-shaky global market backdrop have still kept risk-off trade sentiments alive. In fact, the lure for low volatility products is steady after the U.S. indices hit all-time highs several times to start Q3.

Is Palladium the Best Precious Metal Bet Now?

The interesting fact is that after gold, other precious metals including silver, palladium and platinum joined the party.

Palladium futures soared to an about 14-month high lately. The metal logged its largest one-month price gain in eight-and-a-half years in July with several factors backing it.

First, Palladium is used as catalytic converters which put a lid on unsafe emissions from cars. Now, China's passenger-vehicle sales grew the most in 17 months and hinted at surging demand for palladium from the auto sector.

Second, analysts also believe that after gold's stupendous rally so far this year, traders may be trying "something new and exciting. Maybe investor psychology has humans convinced that if they buy something not so mainstream, maybe they'll make more money."

As per, "Palladium supplies are expected to fall by 4% worldwide," while the demand profile is likely to increase 3%.

What About Platinum?

Platinum peaked to a 17-month high on August 10. Here also, the automobile industry alone is responsible for about 40% of the world's platinum demand, and thus explains why platinum prices are surging. Also, platinum is extensively used for jewelry purposes.

As per an analyst, demand for platinum will likely pick up in India in 2H of 2016 as demand among young buyers is rising given a 10-12% price gap with gold. With extremely low platinum prices (at the current level) and rising gold prices, the spread between two metals is falling and is thus opening a buying opportunity for consumers.

Source: Zacks