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Can palladium turn from laggard to leader?
If being a contrarian investor is appealing, palladium should be the new go-to precious metal of choice. In terms of where investors have flocked, gold and silver have been courted at the expense of platinum group metals. Palladium in particular has been ignored. Can palladium turn from laggard to leader?
While low prices and heightened economic uncertainty have justifiably seen investors brace portfolios with the defensive properties that gold and silver offer, investor positioning is stretched. Futures market positioning for both gold and silver are hovering over two standard deviations above the respective five year averages. Indeed, both gold and silver net long speculative positioning is at the highest level on record (data commenced in 1994).
(Click to enlarge)
Platinum futures positioning is at the highest since August 2014, while palladium positioning is plumbing historical depths. Net speculative positioning reached the second lowest level in April 2016 since September 2008 (the lowest level was reached in March 2016). While sentiment has begun to rebound (largely due to short covering – longs still haven’t broken a multi-year downtrend), there is plenty of room to move. Exchange traded product flows (ETP) also highlight the laggard nature of palladium, with palladium the only ETP experiencing outflows in 2016.
Palladium, like platinum, has been in a supply deficit for the past four years and another deficit is expected in 2016. Although large above ground stocks persist, further supply off-take resulting from South African wage negotiations should see the price rally continue. Moreover, auto applications accounting for 69% of demand, automotive market strength will see the market tighten further. Although growth has plateaued, car registrations remain robust, rising 4% in the US, and Chinese registrations have posted growth of over 6% in the year to April, respectively.
Palladium also shows the weakest price growth in 2016, with gains of 9.4%, compared to 20+% gains for the other precious metals. Consensus expectations for prices in the precious metals sector indicate that palladium looks the likely outperformer – Bloomberg survey forecasts indicate around a 9% rally by year-end 2016 for palladium, with all other precious metals expected to decline.
Martin Arnold, Global FX & Commodity Strategist at ETF Securities
Martin Arnold joined ETF Securities as a research analyst in 2009 and was promoted to Global FX & Commodity Strategist in 2014. Martin has a wealth of experience in strategy and economics with his most recent role formulating an FX strategy at an independent research consultancy. Martin has a strong background in macroeconomics and financial analysis – gained both at the Reserve Bank of Australia and in the private commercial banking sector – and experience covering a range of asset classes including equities and bonds. Martin holds a Bachelor of Economics from the University of New South Wales (Australia), a Master of Commerce from the University of Wollongong (Australia) and attained a Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia.
Recent market movements reinforce the investment case for crypto index investing and we believe that now is the time to build a long crypto exposure via the Nasdaq Crypto Index (NCI) (or to boarden the exposure vs. a single asset Bitcoin ETF position).
Here are some commentaries from our Research:
• NCI surges +18% last week (Nov 3 to 10) while Bitcoin was up +15%: driven by market optimism following Trump’s election and a 25 bps rate cut by the Federal Reserve
• Bitcoin breaks new highs: Closed the week above $80k for the first time, leading a market rally
• Outperformance across NCI constituents:
o Smart contract platforms led gains:
Cardano: +72.6%
Avalanche: +31.4%
Ethereum: +27.2%
Solana: +25.4%
o All constituents (except LTC) outperformed Bitcoin’s gains, see below for last week:
• BTC Dominance tested 60% and retraced: Historically, this has either signaled the end of Bitcoin outperformance or the start of a powerful Altseason
• Strong performance outlook: Momentum in NCI’s broad diversification positions it well for potential long-term gains as macro and regulatory conditions improve
Nasdaq Crypto Index – Constituents performance Nov 3 – Nov 10:
Evolution of Bitcoin dominance:
Why consider Nasdaq Crypto Index (NCI) now?
• Diversification beyond Bitcoin: Capture both Bitcoin’s strength and the upside potential of emerging crypto assets in one allocation.
• Positioning for Altseason: NCI provides targeted exposure to key market segments poised to benefit from broader market growth.
• Current allocation:
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