Palladium Soars on ETF Demand; Gold Bounces

New York (Mar 23)  Gold investors remained doubtful on Friday about future prospects for the yellow metal, managing only a modest rebound from extensive losses earlier this week. But despite gold's weakness, palladium was the star of the day, soaring 3% on demand from new exchange-traded products and positive investor sentiment.

Gold and silver trading were relatively quiet, with April gold futures settling up $5.50 per ounce, to $1,336, while May silver declined another $0.12 per ounce to fall to $20.31. The iShares Silver (NYSEMKT: SLV  ) finished unchanged, lagging the half-percent gain in the SPDR Gold Shares (NYSEMKT: GLD  ) , and mining stocks generally had lackluster performance Friday, as well.

What happened with palladium today?
Palladium doesn't get nearly as much attention as gold and silver or even platinum, as the metal isn't a household name among most investors. Yet, because of its rarity, it is more vulnerable to supply-and-demand dynamics than its precious-metal peers, and that played a major role in its big move Friday.

Palladium is facing three different events, all of which are supporting price increases. First, two new exchange-traded funds are expected to become available to South African investors next week, with the ETFs backed by physical palladium bullion. As happened when the ETFS Physical Palladium (NYSEMKT: PALL  ) exchange-traded fund started trading in the U.S., the new ETFs could pull a substantial amount of palladium bullion out of the market, thereby making supplies for other purposes tighter, and driving up prices.

Secondly, strikes in South Africa have continued without much progress being made in resolving mine workers' disputes. With the strike now two months old, supplies in the spot market were already under pressure, even without the added pressure of ETF demand to consider.

Finally, Russia is a major producer of palladium, and with the threat of more extensive economic sanctions against the former superpower, further loss of supply could send palladium prices up further. So far, economic sanctions have been fairly limited, but already, investors are nervous about the fact that Russia is responsible for more than 40% of palladium supplies.