A Precious Metal That Trumps Gold

Oct 20, 2010

By Halah Touryalai

Palladium will likely see one of the strongest increases in intensity of use of any commodity through 2015.

Commodities will get a major lift if the Fed implements another round of quantitative easing, according to note from UBS analysts.

“We believe that QE2 will prolong the bull market in commodities. We have upgraded most of our commodity deck,” the note says.

The analysts say the monetary stimulus from the Federal Reserve induces capital flows into emerging markets which further induce “commodity-intensive demand.”

“This raises the commodity intensity of global growth, and it provides a powerful positive to commodities demand,” the note adds.

So which precious metal will see the greatest surge as a result?

Palladium. In fact UBS analysts say palladium will likely see one of the strongest increases in intensity of use of any commodity to 2015.

The analysts upgraded palladium, which is mostly used in automobiles, to $500 an ounce in 2010 from an earlier $470 forecast. Over the next 3 to 4 years, the analysts expect palladium to increase 7% to 33% thanks to an increase in China’s demand for cars.

The best case scenario for palladium will on Russia’s stockpile supply.  Unfortunately for the investing world, the size of Russia’s reserve is a state secret.

The country has been selling about 1 million ounces a year recently and Consensus estimates show that there may be just 3 million ounces of palladium left in the country’s stockpile.  If it dries up, palladium prices could hit $1,000 per ounce or more, UBS says.

Meanwhile, the analysts gold prices to increase 2% to 8% through 2013 and silver 10% to 15% in the same period.

Greg Marshall president and CEO of Global Asset Management says palladium is a “forgotten precious metal that has done significantly better than both gold and silver.”

Palladium’s performance speaks for itself: the “forgotten metal is up 34% this year compared with gold’s 20% increase. The physically backed palladium exchange-traded fund Physical Palladium Shares (PALL) which launched in January, is up 35.8% on the year

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