ETFS Palladium (Ticker PALL) has increased over 25% since I established the position on September 21. Given the strong move and increase in my portfolio (now over 5%), it is a good time to re-evaluate the position.
The spot price for immediate delivery of palladium is around $686 US/ ounce. The price has increased significantly over the past 2 years, from a low below $200 US/ ounce. As can be seen in the linked chart, this price is well below the all-time high of over $1,000.
Palladium is widely used in manufactured products, either as a part of the final product or during the manufacturing. The largest single use of the metal is for catalytic converters, which are installed in automobile exhaust systems. Not surprisingly, the price of palladium closely follows the demand patterns of the world's automobile industry. In addition, palladium is widely used in electronic products, like cell phones and LED televisions. Thus demand trends in these industries also impact the price.
Given the strong growth in the automobile industry in China, as well as an improving outlook in the U.S., I believe the demand for palladium continues to grow. In addition, I believe the U.S. economy likely continues to improve over the next couple quarters, which should improve demand for consumer electronic products. Finally, with the introductions of ETFs focused on the metal, there appears to be growing interest by investors to invest directly in the metal as both a way to diversify and to play the rising prices. I believe these forces, coupled with a weakening dollar, likely carry palladium back near its all-time high above $1,000 over the next couple quarters.
My exit from the ETFS Palladium investment is likely either at a price for palladium above $1,000 or changes in the economic outlook that would impact its demand.
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