Fool's Gold Report: Palladium Soars on ETF Demand; Gold Bounces

Gold investors remained doubtful on Friday about future prospects for the yellow metal, managing only a modest rebound from extensive losses earlier this week. But despite gold's weakness, palladium was the star of the day, soaring 3% on demand from new exchange-traded products and positive investor sentiment.

Gold and silver trading were relatively quiet, with April gold futures settling up $5.50 per ounce, to $1,336, while May silver declined another $0.12 per ounce to fall to $20.31. The iShares Silver (SLV 1.31%) finished unchanged, lagging the half-percent gain in the SPDR Gold Shares (GLD 0.31%), and mining stocks generally had lackluster performance Friday, as well.

Source: Kitco. As of market close.

What happened with palladium today?
Palladium doesn't get nearly as much attention as gold and silver or even platinum, as the metal isn't a household name among most investors. Yet, because of its rarity, it is more vulnerable to supply-and-demand dynamics than its precious-metal peers, and that played a major role in its big move Friday.

Palladium crystals. Image courtesy Jurii via Wikimedia Commons.

Palladium is facing three different events, all of which are supporting price increases. First, two new exchange-traded funds are expected to become available to South African investors next week, with the ETFs backed by physical palladium bullion. As happened when the ETFS Physical Palladium (PALL -0.18%) exchange-traded fund started trading in the U.S., the new ETFs could pull a substantial amount of palladium bullion out of the market, thereby making supplies for other purposes tighter, and driving up prices.

Secondly, strikes in South Africa have continued without much progress being made in resolving mine workers' disputes. With the strike now two months old, supplies in the spot market were already under pressure, even without the added pressure of ETF demand to consider.

Finally, Russia is a major producer of palladium, and with the threat of more extensive economic sanctions against the former superpower, further loss of supply could send palladium prices up further. So far, economic sanctions have been fairly limited, but already, investors are nervous about the fact that Russia is responsible for more than 40% of palladium supplies.

Somewhat surprisingly, shares of Stillwater Mining (SWC), the only U.S. based miner of palladium, only rose 2% on the day. Stillwater took what proved to be ill-timed steps to diversify away from platinum-group metals toward gold, but even so, it stands to gain quite a bit if palladium's gains persist. Even though most precious metals market participants focus on gold, smart investors will keep their eyes on the lesser-followed white metal in the days and weeks to come to see if it can build on its gains and sustain a climb above the $800 level for the first time since 2011.