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Palladium's Revving Up Gains

What has metals investors all revved up? Not gold, silver, or copper.

Palladium
Wikipedia
Palladium

No, this month, it's the smallest metals market that has posted the biggest gains, actually this white metal has the only positive return for the entire metals complex.

Palladium raced ahead of all other metals in April.

After climbing double digits in the first quarter, platinum and silver futures were down 4 and 5 percent, respectively. Both metals lost ground for the second consecutive month. Copper prices were flat, and gold seems to have lost its luster, posting its third straight monthly decline.

But palladium, a critical element in car's catalytic converters that helps to control exhaust emissions, has climbed 5 percent this month, after falling fractionally in the first quarter.

What's changed?

William Rhind, managing director of ETF Securities, says good auto sales have resulted in a change in investor sentiment. "We've seen throughout the first quarter a strong reversal in sentiment for palladium, primarily driven by the anticipated demand by Chinese and U.S. market for more gasoline-engine vehicles," says Rhind.

That bullish sentiment has been driving money into palladium exchange traded products this year.

ETF Securities revealed the results of its latest survey showing inflows surged into its palladium ETF — ETFS Palladium Trust — in the first quarter, outstripping flows into some its other metals ETFs, including ETFS Swiss Gold Shares and ETFS Asian Gold Trust.

Investors purchased nearly seven times as much palladium and platinum ounces as gold in the first quarter, based on flows into ETF Securities U.S.-based ETFs. Investors bought 197,000 ounces of palladium in the first quarter, compared to to 34,000 ounces of gold.

"We feel it's primarily because investors are more confident about the economy generally, but are looking at other opportunities outside of gold within the precious metals," Rhind says.

Still, since investment demand only makes up about 5 to 7 percent of the price of palladium, industrial demand remains the driving force in this metal's gains.

HSBC chief commodities analyst Jim Steel says he's "bullish" on this metal as industrial demand for palladium has been steady and mine production remains limited. Despite the dip in the first quarter, Steel believe palladium's price gains this April should be sustainable throughout the year.

Follow Sharon on Twitter: @sharon_epperson

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