Palladium's High-Risk Investment: Volatile Market And Geopolitical Concerns

PALL is an equity-based exchange traded fund (ETF) that reflects the performance of the price of physical palladium. ETFs that invest in foreign securities have higher risk characteristics compared to domestic securities. Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. They may be extremely volatile, illiquid, and significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. In addition, commodity futures-linked ETPs include additional risks, such as the inherent fluctuations of commodity prices, the speculative nature of futures investments, and the risk that the price will not directly track the spot price of the commodity.

Fluctuations in commodity prices

Palladium is a high-risk investment because its price is volatile. As with any commodity, the price of palladium is primarily shaped by the forces of supply and demand. The price of palladium rallied in 2020 amid supply deficits caused by pandemic-induced restrictions in exporting countries. An outage at an Anglo American (AALI) plant in South Africa in 2020 further tightened supply.

The supply side is severely restricted for a few key reasons. Top producers such as Russia and South Africa aren't consistent in their output because of poor infrastructure and a lack of internal investments. The demand for palladium is high because of the metal's diverse range of applications. This means that palladium will remain highly sought-after independent of the conditions in the precious metals market.

The price of palladium has also spiked following the invasion of Ukraine by Russia, the metal's biggest exporter. However, prices stabilised further in 2022 as chip shortages and the push for electric vehicles (EVs) depressed automotive demand.

Palladium is one of only four precious metals eligible for self-directed IRAs. A self-directed IRA opens investors to a whole range of alternative physical assets. You benefit from the tax advantages of retirement plans when buying palladium through a precious metals IRA while getting additional protection from being exposed to this valuable metal.

Speculative nature of futures investments

PALL is a high-risk investment due to its speculative nature. Commodity futures-linked ETPs, such as PALL, are subject to the inherent fluctuations of commodity prices, which can be influenced by various factors such as world events, import controls, government regulations, and economic conditions. This means that the performance of PALL may not directly track the spot price of the underlying commodity, in this case, palladium.

The speculative nature of futures investments is a significant risk factor for PALL. Futures contracts are agreements to buy or sell an asset at a specified price on a future date. The value of a futures contract is based on the expected future price of the underlying asset. As the future price of an asset is uncertain, investing in futures contracts involves a high degree of speculation.

The speculative nature of futures investments can lead to potential gains or losses for investors. If the future price of the underlying asset moves in the expected direction, investors can profit from their speculative investments. However, if the future price moves against their expectations, investors may face significant losses.

Additionally, commodity futures-linked ETPs may be impacted by contango and backwardation. Contango occurs when the futures price of a commodity is higher than the expected future spot price, while backwardation is the opposite, where the futures price is lower than the expected future spot price. These market conditions can affect the performance of commodity futures-linked ETPs and introduce further uncertainty for investors.

It is important for investors to carefully consider the risks associated with PALL and other similar investments. Being a passive investor can put one at unnecessary risk. Staying informed about market data, analysis, and insights on a daily basis can help investors make more informed decisions and take control of their financial future.

Impact of world events

Palladium is a commodity-related product and, as such, is subject to the inherent fluctuations of commodity prices. This means that the price of palladium can be extremely volatile and significantly affected by world events. For example, the anticipated depreciation of the dollar, looser financial conditions in the United States, and the restocking cycle in the auto industry are all factors that could increase demand for palladium and push up its price. On the other hand, tighter mine supply, recycling constraints, and regulations aiming to lower pollution in the automotive industry could limit the supply of palladium and cause its price to rise.

As an investor in palladium, it's important to be aware of these potential risks and how they can impact the price of the commodity. While palladium may offer a unique investment opportunity, it's crucial to carefully consider the information contained in the prospectus, including investment objectives, risks, charges, and expenses.

Additionally, it's worth noting that commodity futures-linked ETPs, such as palladium, may be impacted by contango and backwardation. This means that the price of a commodity futures-linked ETP may not directly track the spot price for the commodity itself and can perform differently over time. As a result, investors in palladium should pay close attention to market data, analysis, and insights on a daily basis to manage their portfolio risks effectively.

Impact of government regulations

PALL is an ETF that is designed to reflect the performance of the price of physical palladium. It is a commodity-related product, which means that it carries a high level of risk and may not be suitable for all investors.

Commodity-related products can be extremely volatile and illiquid, and they can be significantly affected by a variety of factors, including underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.

Government regulations can have a significant impact on the performance of commodity-related products like PALL. For example, regulations aimed at lowering pollution in the automotive industry can affect the demand for palladium, which is used in autocatalysts. Tighter mine supply and recycling constraints can also impact the availability and price of palladium.

In addition, government regulations can affect the supply and demand of other commodities that are linked to PALL. For example, if the government imposes restrictions on the export of a particular commodity, it could impact the price and availability of that commodity, which in turn could affect the performance of PALL.

Government regulations can also impact the overall economic conditions, which can have an indirect effect on the performance of PALL. For example, if the government raises interest rates, it could impact the demand for risky assets like commodities.

Overall, government regulations can have a significant direct and indirect impact on the performance of PALL and other commodity-related products. Investors should carefully consider the potential risks and rewards of investing in these types of products and stay informed about key signals and indicators that can affect their performance.

Performance returns

The performance returns of palladium as a high-risk investment are subject to market conditions and interest rate changes. The price of palladium is expected to appreciate in 2023 due to a combination of favourable macroeconomic and fundamental drivers. On the macro front, the anticipated depreciation of the dollar, along with looser financial conditions in the United States as inflation moderates, will increase demand for risky assets, such as commodities like palladium. On the fundamental front, palladium prices are expected to be supported by a restocking cycle in the auto industry, tighter mine supply, recycling constraints, and regulations aiming at lowering pollution in the automotive industry. As the supply-demand balance of the palladium market remains in deficit and the macro backdrop for commodities becomes more favourable, the price of palladium is expected to increase.

Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, illiquid, and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Commodity futures-linked ETPs include additional risks, such as the inherent fluctuations of commodity prices, the speculative nature of futures investments, and the risk that a commodity futures-linked ETP’s price will not directly track the spot price for the commodity.

ETFs that invest in foreign securities have higher risk characteristics versus domestic securities. ETF shares may be valued more or less than their original cost at the time of sale or redemption. Being a passive investor puts you at unnecessary risk. It is important to pay attention to the right market data, analysis, and insights on a daily basis to take control of your financial future.

The Aberdeen Standard Physical Palladium Shares ETF (NYSEARCA:PALL) presents a unique investment opportunity for those looking to gain exposure to palladium and capitalise on potentially favourable performance returns. The investment seeks to reflect the performance of the price of physical palladium, less the Trust’s expenses. The fund is designed for investors who want a cost-effective and convenient way to invest in palladium with minimal credit risk.

Frequently asked questions