Palladium Hits 13-Year High; Time to Buy PALL ETF? - ETF News And Commentary

The geopolitical stand-off between Russia and the West over the Ukraine issue hit most headlines this year. The U.S. and the European Union (EU) initially imposed minor bans on some Russian diplomats as a protest against Russian activity toward Ukraine.

 The geopolitical stand-off between Russia and the West over the Ukraine issue hit most headlines this year. The U.S. and the European Union

initially imposed minor bans on some Russian diplomats as a protest against Russian activity toward Ukraine.

However, in July, the U.S. forbade Russia's all-important

, banking and defense sectors with the European Union and Canada also introducing similar sanctions (read:

).

As a result, almost after six months of antagonism, Russia counteracted by imposing restrictions on a good number of food imports from the West on August 7. The U.S. and Europe are now chalking out further sanctions to end what they view as straight Russian military intrusion in Ukraine (read:

).

Investors should note that Russia is a commodity rich nation and the possibility of stricter sanctions increased the value of some products which are sourced from Russia. One such commodity is Palladium. Russia accounts for around 40% of global palladium supplies, and as such, can be a huge driver of prices.

Though no metal-related sanctions has hit the market yet, concerns of more economic ban on Russia or trade restrictions have increased such possibilities. Any metal-related ban could weigh on the export of palladium.

Notably, palladium is suffering from a supply shortage.

recently projected that palladium production from Russia will decline 2% this year. A waning inventory profile in Russia and a five-month long mine strike (that just ended in June) in South Africa – the second biggest producer, have resulted in the steepest supply shortfall of the metal in about 14 years.  

Palladium is used as catalytic converters which put a lid on unsafe emissions from cars. Demand from auto sector will be robust in the days to come as evident by the multi-year high sales of cars and trucks in the U.S. in

. Thus, an uptick in auto sales will keep driving the demand for the metal outpacing supplies (read:

).

Palladium has skyrocketed about 27% so far this year and the recent prospect of further sanctions took it to the

-year high and the metal price touched

. Prices of palladium snapped up a seven-month long rally in August, the best winning streak in

years. In fact, just as users took a breather when the South African mining strike came to end, the tension in Russia heated up adding to supply concerns.

In a nutshell, the global supply outlook appears fragile at the current level making the metal an intriguing option for investors. Below we have highlighted the only pure-play on the metal –

(

) – in detail.

For a bullion-backed approach to palladium ETF investing, investors can look to ETF Securities Physical Palladium Shares or PALL. The ETF holds the metal in the form of bullion, or ingots. The metal is safely stored in London and Zürich on behalf of the custodian, JP Morgan Chase Bank.

Investing through PALL in palladium represents a cost-effective and suitable mode for investors. The transaction costs for buying and selling the shares will be much lower than purchasing, storing and insuring physical palladium for most investors.

This ETF is designed to track the spot price of Palladium bullion and has amassed about $559 million in assets. The expense ratio of 60 basis points appears reasonable in the precious metals ETF space.

PALL has returned about 27% year to date (as of August 29, 2014). The fund breezed past other metal products like

(

) and

which added 3.4% and 6.7%, respectively, in the time frame, and if tensions continue, could remain a strong pick in the future as well (read:

).

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