A White (Metals) Sale You Won’t Want to Miss

Sean Brodrick

You know I’m a big fan of gold as an enduring stash of wealth. I’m an even-bigger fan of building wealth quickly while you wait for your core, longer-term gold holdings to pay off.

This means keeping some powder dry to be able to jump into faster-moving opportunities. And right now, the precious metals are exactly the place to invest for near-term gains as well as long-term security.

In my trading services, I’ve led my subscribers to some hefty, quick returns in small miners with big potential. But with the miners getting crushed in the early part of this year, we’ve broadened our search to find nearer-term returns … and still at a fraction of the cost of buying the metals outright.

With gold prices inching higher with the broader markets, it makes sense to look at another white-hot metal that hasn’t had its day in the sun yet. Even better, it just went on sale … but probably not for much longer.

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Palladium pulled back sharply on Tuesday, closing at $734 per troy ounce, down from $761 the day before. Some of this stemmed from worries that the problems in Cyprus would cause a financial panic in Europe, thus deepening the continent’s recession.

Certainly, weak European auto sales are also part of the equation. As an industrial metal, palladium is widely used to clean car-exhaust fumes.

An average auto catalyst contains about 4 grams (0.13 troy ounces) of palladium or its more-expensive cousin, platinum. Carmakers typically use more palladium for gasoline engines and more platinum for diesel engines.

Palladium rose more than 11% in last year’s fourth quarter — as other metals were falling — as demand for auto catalysts soared to a record high.

And so, not surprisingly, news that new-car registrations in the European Union, a proxy for sales, fell 9.5% during the first two months of 2013 added to the metal’s sudden drop.

And that’s why (I think) we saw the ETFS Physical Palladium Shares (PALL) pull back sharply. Look at this chart  …

(Updated chart)

You can see that PALL pulled back to its recent uptrend, testing the 50-day moving average at the same time. That said, the uptrend seems to be holding. We’ll need to see more of a bounce to be sure. Yesterday, the forces of buy and sell seemed to be balanced.

I’ve seen some notes about gold’s relationship to platinum and palladium. Here’s a chart of the SPDR Gold Trust (GLD) / PALL ratio  …

(Updated chart)

I’m not necessarily keen on this ratio — the only ratios I watch in gold are its relationship to silver and its relationship to miners. Still, this ratio seems to matter to some investors.

We can see that the ratio rallied on the bad news out of Cyprus, but now it seems to be fading. That is bullish for palladium in relation to gold.

The takeaway is that palladium is still a better bet than gold going forward.

That doesn’t mean I’m bearish on gold. Nope. It just means that palladium holds more upside potential in the near term.

If the uptrend in PALL that I showed you in the previous chart breaks decisively, I will have to reconsider.

There are several ways to play palladium. You could buy a miner. But considering how miners throughout the precious-metals universe have been beaten up compared to the metals themselves, you may want to check out a palladium fund instead.

In addition to PALL, here are three more funds that hold the physical metal:

ETFS Physical White Metals Basket Shares (WITE): Average volume: 5,586. Expense ratio: 0.60%. Launched in December 2010, this fund offers bundled exposure to silver, platinum and palladium under one ticker. WITE dedicates about 60% of its total assets to silver, while platinum accounts for 30% and palladium fills in the last slot at 10%.

ETFS Physical Precious Metals Basket Shares (GLTR): Average volume: 16,295. Expense ratio: 0.60%. Launched in October 2010, this fund holds a basket of metals. It holds gold, silver, platinum and palladium in fixed weights, which works out to 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium.

VelocityShares 2x Long Palladium ETN (LPAL). Its average trading volume is 2,436 shares a day, which is low.

When you’re choosing the best way to trade palladium, pay close attention to how much exposure the fund has to the metal and to the amount of shares changing hands each day. A fund like PALL, for example, sees an average of 73,024 shares changing hands and is a pure play on palladium.

Remember, the better the trading volume, the quicker it is to enter and exit the position — and, in turn, the easier it is to get good prices when you’re buying and selling.

All the best,

Sean

P.S. My Global Resource Hunter subscribers have just closed out a string of positions with gains in the past month. Right now they are long palladium and sitting on some nice open gains in other precious-metals and natural-resources trades. It’s not too late to get in on the next round of profits — join them today by clicking here now.

Sean travels far and wide to seek out small-cap values in the natural resource sector. His journey started in New England. As a youth he worked on Mt. Washington, on the cog railroad that runs to the summit.