PALL Abrdn Palladium ETF Trust

Precious metal investing has become increasingly popular as of late, as more investors grow worried over the long term impact of the Fed’s policies on the strength of the dollar. This fear has pushed many into the hedges of the four metals of gold, silver, platinum, and palladium as a result.

While gold, and to a lesser extent silver, have always been popular with investors, palladium and platinum have really begun to shine as possible investments thanks to the development of the exchange traded fund industry. These physically backed ETFs, PALL for palladium and PPLT for platinum, both come to us from ETF Securities and were the first exchange-traded way for investors to establish a position in the physical metal in the U.S.

Both have seen decent interest from investors as the two metals have very different drivers than what we see in the gold and silver markets. Gold is almost entirely dependent on investment demand, while silver has more of a split between investing and industrial uses. Meanwhile, platinum and palladium are, at least at this time, used primarily in industry, making them far more correlated to economic growth than silver and especially gold (see Zacks #1 Ranked Precious Metal ETF: PALL).

It should also be noted that both are driven by car demand and catalytic converters in particular. This usage comprises the bulk of platinum and palladium demand while jewelry and then other industrial uses account for much of the rest.  In fact, in both cases, investment demand makes up less than 10% of the total usage, suggesting an extremely high correlation with economic activity for both of the metals.

Given this reality, investors shouldn’t be surprised to note that the charts for PPLT and PALL are quite similar, as they are both driven by the same things. Over the past two years, the two metals have put up nearly identical performances with both losing about 3.2% in the time frame in question.

That doesn’t mean that the two always move in lockstep though, as shorter time periods have shown significant outperformance for one metal when compared to the other. In the YTD period, for example, PPLT is up about 12.3% while PALL is just barely above break-even, while in a one-year look, PALL has outperformed platinum by about 1,000 basis points (read Protect Against QE with these Precious Metal ETFs).

Clearly, the metals don’t always move in a perfect one-to-one correlation with each other but they do often revert back to similar performance levels over longer-time periods. The only difference seems to be that palladium is far more volatile and prone to bigger swings than its platinum counterpart, suggesting that those with a lower risk tolerance should consider PPLT over PALL.

So while both metals offer up great exposure to their respective metal, it is questionable if investors really need both in their portfolio. PALL and PPLT both are influenced by the same macroeconomic factors, and for long-term investors, they seem likely to move in similar patterns (see Precious Metal ETFs: Beyond Gold).

While it is never advisable to base decisions off of past events, both PALL and PPLT look to have the same drivers going forward, so it is doubtful that their relationship will not hold in the near future as well. For this reason, if investors are bent on obtaining some precious metal exposure in their portfolio beyond gold and silver, platinum and palladium could make for interesting choices, but obtaining both is probably overkill for most.

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ETFS-PALLADIUM (PALL): ETF Research Reports
 
ETFS-PLATINUM (PPLT): ETF Research Reports
 
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