Palladium can continue to outperformance despite mixed interest

The new palladium ETF released by ABSA in South Africa has so far failed to capture the same interest as the platinum ETF did last year. As of today, the NewPalladium ETF has ~8.8koz, which is small in the context of the ~2.1mln ounces held in ETFs globally.

To be sure, physical interest in palladium ETFs has been surprisingly subdued in the year to date according to Bloomberg data.  Palladium ETFs have seen small net outflows since the start of 2014, compared to small gains for platinum and gold.  As the chart left shows, the base of 2013 for gold and platinum ETF investment is very different.

Speculative interest in palladium has also been surprisingly mixed. While net long positions have been built to near record levels, there has also been a noticeable increase in shorts.

Perhaps this represents two views on the impact of potential sanctions on Russia, the largest producer of palladium.  In my view, it seems unlikely that sanctions will affect palladium availability.

Even so, its interesting that platinum has seen a large increase in speculative longs, without the increase in shorts. It seems unusual that platinum would have greater interest given the relative demand/supply equations.

Perhaps some of this is based on the recent outperformance of palladium, which many perhaps don't expect to last.  The Pt:Pd ratio is now comfortably below the previous multi-year low set late last year.

So where to from here? Its not clear whether to favour Pd over Pt, or the other way around, given the odd nature of positioning vs. the relative price performance.

It's clear that if platinum is to rise will have to be propelled by fresh longs rather than short covering. Such an event is also likely to be bullish for palladium as well, which has a greater potential for shorts to be closed out.

The biggest problem for palladium seems to be that prices are high in terms of recent history, although are still under levels seen in 2010.

I tend to think palladium is the better bet from a short term perspective, even given the strong recent outperformance.