Palladium Problems Could Spell Trouble for Precious Metals ETFs
London (Sept 10) With the recent weakness in gold and silver exchange traded funds, year-to-date returns for precious metals ETFs are turning increasingly mediocre.
For example, the SPDR Gold Shares (NYSEArca: GLD) enters Wednesday with year-to-date performances of up 2.3% for GLD and down 5% for the iShares Silver Trust (NYSEArca: SLV). The ETFS Physical Platinum Shares (NYSEArca: PPLT) has not been anything to write home about, either, with a loss of 1.5%.
The lone beacon of light among physically-backed precious metals ETFs in 2014 has been the ETFS Physical Palladium Shares (NYSEArca: PALL) with a gain of 18.4%. PALL has surged amid a variety of catalysts.
Geopolitical tension involving Russia, the largest palladium producer, and labor strife in South Africa, the number two producer of the white metal, have boosted palladium futures. Solid economic data in China and the U.S., which has sparked automobile demand, has also benefited PALL because palladium is the key ingredient in catalytic converters in automobiles made in China and the U.S. [Palladium ETF Races to Multi-Year High]
In what could be bad news for the broader precious metals complex and some or all of the aforementioned ETFs, PALL’s leadership is being challenged. In the past week, the ETF is down 4.3% and the technical take is more discouraging than encouraging.
“When it comes to the metals complex, its not been that great of a year for Gold or Silver. On the flip side, Palladium has had a good year, as it was up near 25% YTD a couple of weeks ago. Of late, Palladium is breaking a support line that has been in place the past 9 months,” said Chris Kimble of Kimble Charting Solutions.
PALL’s recent woes come at the hands of a familiar culprit and it is not increased supply because the palladium market is expected to once again run at a deficit this year. Rather, palladium is denominated in U.S. dollars, making it just as vulnerable as gold and silver to the greenback’s strength. That strength has been on full display lately with the PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP) up 3.2% over the past month. [Dollar Inflicts Pain on Commodities ETFs]
PALL lost just $4.3 million from Sept. 2 through Sept. 8, but that could be a sign outflows could ramp if palladium prices continue faltering.
“I am of the opinion it pays to watch leadership…Keep a close eye here on Palladium price action over the next few weeks,” adds Kimble.