Palladium, the “white gold” used by certain hedge funds as a risk management substitute for gold, is soaring in value.


Palladium is up 24%

After breaking technical resistance and hitting a thirteen year high at $900 per troy ounce, as noted in press reports, the metal is up 24 percent this year, making it the third best performing commodity year to date.

When compared to futures trading in gold, Palladium is a thinly traded metal that is increasingly being viewed by traders as a risk management substitute for gold.  This has been particularly the case during the recent Ukraine tensions, as Russia is a major producer of the metal which, among other uses, goes into catalytic converters that eliminate 90 percent of harmful gases from auto emissions, accounting for nearly half the metal’s use.

Palladium, which is also found in South Africa, is used in hydrogen purification, has medical uses and plays a key role in technology used in fuel cells that combine hydrogen and oxygen to create electricity.

Palladium trades are not large enough to attract algorithmic hedge funds’ interests

Trading in the metal has always been muted, however, as volumes on the futures exchanges, often under ten thousand contracts traded, are not large enough to garner interest from major algorithmic hedge funds. While some funds invest in the metal, as a percentage of their risk allocation and assets under management, the funds interested have generally been the smaller and more nimble. When larger funds do invest, their full deployment into the metal, when compared to gold, can be more limited due to concerns they may manipulate the market and find difficulty in exiting a large position.

“Palladium investors [moved] convincingly net long amid expectations long term supply may be suppressed due to recent sanctions imposed against Russia and a firming demand environment,” TD Securities was quoted as saying in a Business Insider report.   Morgan Stanley’s Adam Longson landed his support along the same lines as TD Securities, basing an investment thesis in the “white metal” on strong supply and demand fundamentals.

On a technical level, Palladium climbed on strong volume after testing support in early August. In the very short term the commodity may experience overhead resistance, but algorithmic buy signals were given in many indicators several days ago indicating potential longer term upside.