Short Covering Reignites Palladium ETF Rally

Palladium demand supported by tighter automaker emission standards

The price of palladium, the little-known brother of platinum, climbed nearly 20% in 2018 due to both an increase in demand from automakers and concerns over supply caused by mine strikes in South Africa. However, the silvery-white metal has slumped in recent months due to lackluster auto sales in both the Chinese and U.S. auto markets.

Palladium regained some of its shine and safe-haven status Friday as short sellers covered their positions amid a breakdown in trade negotiations between the United States and China last week coupled with the palladium price falling below the gold price for the first time this year in Thursday's trading session. Looking forward, analysts expect the lustrous metal to remain in demand throughout 2019 as automakers use more palladium for catalytic converter production to meet tighter emission standards.

"Even with the sluggish performance of both the Chinese and U.S. auto markets in early 2019, auto-catalyst demand will almost certainly rise this year, due to higher vehicle sales elsewhere and tightening emissions legislation," Metals Focus told

Traders can gain exposure to palladium using the three exchange-traded funds (ETFs) discussed below. Let's explore several ways to trade the precious metal.

Aberdeen Standard Physical Palladium Shares ETF (PALL)

With assets under management (AUM) of $216.34 million, the Aberdeen Standard Physical Palladium Shares ETF (PALL) seeks to reflect the performance of the price of physical palladium. It holds the precious metal in JPMorgan Chase & Co. (JPM) vaults in London and Zurich. The fund, which launched in 2010, provides adequate liquidity, with over 40,000 shares changing hands per day, although its 0.36% spread may not suit scalpers trying to capture tiny moves. The ETF's 0.60% expense ratio remains competitive for a precious metals fund. As of May 13, 2019, PALL sports a year-to-date (YTD) gain of 3.35%.

PALL shares rallied 3.85% Friday from the lower trendline of a falling wedge pattern, which indicates that the two-month correction may be over. The relative strength index (RSI) shows a reading below 50.0, giving the price plenty of upside room before registering overbought conditions. Traders who take a long position should place a profit target near the 52-week high of $152.97 set on March 21. Manage risk by positioning a stop-loss order slightly beneath this month's low at $120.01 and amending it to the breakeven point if price crosses back above the 50-day simple moving average (SMA).

Chart depicting the share price of the Aberdeen Standard Physical Palladium Shares ETF (PALL)

Sprott Physical Platinum and Palladium Trust (SPPP)

Created in 2012, the Sprott Physical Platinum and Palladium Trust (SPPP) provides a secure, convenient investment alternative for investors who want to hold physical platinum and palladium. It allocates 77% of assets to palladium and 22% to platinum. The trust's metals are held in custody by The Royal Canadian Mint, with unitholders having the ability to redeem their units for physical platinum and palladium every month. Average daily share volume of nearly 65,000 offers decent liquidity for swing traders. SPPP has $96.69 million in net assets, charges a 1.13% management fee and is up 6.39% on the year as of May 13, 2019.

The bears have had total control of SPPP's shares since the ETF formed a double top between February and March. However, a recent rejection of the 200-day SMA and bullish divergence between the RSI indicator and price action suggests waning seller momentum that could trigger a trend reversal back to the upside. Those who take a trade should set a take-profit order in the vicinity of the double top pattern between $12 and $12.25. Stops could sit either under Friday's low at $10.19 or below the reversal hammer candlestick at $9.56.

Chart depicting the share price of the Sprott Physical Platinum and Palladium Trust (SPPP)

Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR)

Although the Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) is primarily a silver fund, it does allocate a small portion (0.5%) of its $354.87 million asset base to palladium. Formed in 2010, the ETF averages $1.29 million a day in dollar volume and has a respectable 0.20% spread that facilitates the use of both market and limit orders. Performance wise, GLTR has a YTD return of -0.79% as of May 13, 2019. Investors pay a 0.60% management fee and typically get taxed at the collectibles rate on capital gains due to the fund's structure as a grantor trust.

GLTR shares continued higher for about six weeks after the 50-day SMA crossed above the 200-day SMA to generate a "golden cross" buy signal. However, since March, the fund's price has retraced to form a falling wedge pattern. Traders can buy Friday's push off the pattern's lower trendline or wait for a breakout before committing capital. Think about booking profits if price tests the February high at $67.07 and cutting losses on a close beneath the May 2 low at $62.30.

Chart depicting the share price of the Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR)
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