Time to Buy this Precious Metal ETF? - ETF News And Commentary
April 10 2013 - 6:45AM
Zacks
While many commodities are struggling, good news continues to
pour in for the platinum-group metals. This time, many analysts are
becoming more bullish on palladium, largely thanks to supply
worries in the market.
In fact, according to Ross Stachan, commodities economist at
Capital Economics, palladium prices could have further to run by
the end of 2014. In a recent MarketWatch piece, he declared that
prices for platinum and palladium could rise by about a fifth
before the end of next year, mostly on the back of supply concerns
from some of the big producers in South Africa.
Car Market
It also doesn’t hurt that demand is keeping up, pushed higher on
solid auto sales. Total annualized sales of domestic vehicles are
holding steady above 12 million, and this could help to buoy
palladium demand in the near term (read Palladium and Platinum ETFs
to Soar?).
This is especially important as palladium is a key component in
catalytic converters for gasoline-powered engines, something that
is more popular in the U.S. and China than it is in Europe. So the
slowdown in European car sales hasn’t been as much of an issue for
palladium, while it has detracted from platinum’s appeal in the
same time frame.
Russian Connection
Investors should also note that Russia, along with South Africa,
is a key supplier of palladium supplies. The country is very
hush-hush on its stocks of the metal though, so investors must
glean information from a variety of tangential reports.
One such source is the Swiss trade figures, as the country is a
major thoroughfare for the metal. Imports were quite low once
again, leading many to think that Russia is running low on its
palladium reserves.
Recent History
Investors have already started to see these factors influencing
prices, at least in the ETF market. PALL, tracking physical
palladium, and PPLT, tracking physical platinum, have both easily
beaten out broad commodity products like DBC in the YTD period (see
Zacks Top Ranked Platinum ETF in Focus).
However, it is worth pointing out that PALL has also done much
better than PPLT, managing to hold on to gains while others have
faltered. PALL is actually now the only metal of the four precious
metals to still be in the green YTD, suggesting it has been a great
play in this relatively short time frame.
Palladium Outlook
We tend to agree with this bullish outlook for PALL, as the fund
currently receives a Zacks ETF Rank of 2 or ‘Buy’ over the next 12
months. This means that we look for this ETF to outperform similar
products over the next year, and continue its solid run in Q2 (see
3 Commodity ETFs Still Going Higher).
So for investors still seeking to make a commodity ETF play,
PALL may be an overlooked choice. The commodity is pretty unpopular
when compared to any other product in the precious metals group, so
there still could be some gains to be had in the space, especially
if current trends continue.
Despite the relative unpopularity though, PALL has attracted a
decent level of assets and sees a solid amount of volume around the
75,000 share mark. This helps to keep the bid-ask spread low for
PALL, and it should make this ETF a solid choice for investors
seeking to trade quickly in the product (see Trade Goldman’s
Commodity Picks with These ETFs).
Given this decent liquidity and some of the strong fundamentals,
PALL may be a good pick for investors in Q2. This is particularly
true when comparing PALL to other commodity ETFs, as the future
appears far brighter for palladium than it does for many of the
other commodities at this time.
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Author is long PPLT.
PWRSH-DB COMDTY (DBC): ETF Research Reports
ETFS-PALLADIUM (PALL): ETF Research Reports
ETFS-PLATINUM (PPLT): ETF Research Reports
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