Gold is getting hammered, and the pain in the sector is
putting gold bulls in a panic. The yellow metal is down more than
27% year to date, and in just the past month, gold prices have
tumbled more than 7%.
The latest decline in gold came on Tuesday, when it traded
lower by as much as 2.7%, breaking down below very weak support
levels around $1,225. About the only hope for gold longs here is
to pray for a bad jobs number Friday, as that may keep the
Federal Reserve from tapering sooner rather than later.
Yet aside from prayer, what can a precious metal investor do
if he wants to stay in metals but get out of the sinking ship
that is gold? One answer would be to seek shelter in another
precious metal, one that's also benefiting from strong industrial
demand tailwinds, and that metal is palladium.
Rather than trading palladium on the commodities futures
market, a prospect I find fraught with difficulty, I prefer to
use exchange-traded funds (ETFs) such as the
ETFS Physical Palladium Shares (NYSE:
PALL has held up very well this year when compared with other
precious metals. The ETF is actually up about 1% year to date
versus the aforementioned 27% dive in gold. It's also fared far
better than silver, which is down more than 37% so far in
So, in a year that's seen the biggest precious metals lose
their luster, why has palladium held up so well? The main reason
is increasing global auto demand.
In a recent research note, analysts at ETF Securities wrote,
"We believe the palladium price has the potential to perform
strongly over the next few months on a combination of price
supportive supply and demand fundamentals."
The demand side of the equation, according to the analysts, is
driven by the fact that over 65% of palladium demand comes from
auto demand. Palladium prices also are strongly linked to the
production outlook for vehicle sales in China and the United
States. And as ETF Securities' note reads, with "China auto sales
expected to surpass 20 million this year, and U.S. light vehicle
sales forecasted to climb to 15 million, we believe palladium
price has upside potential."
As for the supply side, palladium, along with platinum, is
likely to be constrained for some time. According to a report
from Barclays and Johnson Matthey, palladium and platinum used in
automobile catalytic converters is, and will continue to be, in
Then there is analyst Daniel Briesemann at Commerzbank (the
most accurate palladium forecaster tracked by Bloomberg over the
past two years), who said, "Platinum and palladium markets show
the tightest supply and demand among precious metals and probably
will throughout next year as well."
The combination of strong demand for palladium used in
automobile catalytic converters, and the tight supply conditions
in the palladium market mean this precious metal is likely to do
well over the next six months. Moreover, unlike gold, palladium
prices aren't likely to be stifled much by the Fed's decision to
taper or by machinations in the currency markets.
When supply and demand are on your side in a trade, the
chances are pretty good you're going to make out well.
Action to Take -->
-- Buy PALL at the market price
-- Set stop-loss at $62.87, approximately 10% below the current
-- Set initial price target at $83.82 for a potential 20% gain in
This article was originally published at
Gold is a Bust, but This Precious Metal is a
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