UBS Global Research Maintains Bearish Stance on Palladium Despite ETF Investments Reaching Five-Year Peak

UBS Global Research continues to express skepticism about the long-term strength of palladium prices, even as ETF investments in the metal have reached a five-year peak in 2024. The increase in Palladium ETF holdings by approximately 138,000 ounces this year, bringing the total to 546,000 ounces, is seen as a catch-up positioning to other precious metals, mainly driven by European investors.

The recent underperformance of palladium compared to other precious metals has prompted investors to position for a potential catch-up, especially amid expectations of undersupply this year. However, UBS highlights two critical factors that are expected to suppress palladium demand over the long term.

Firstly, the global automotive industry’s projected reduction in vehicle production this year will impact palladium demand, given its predominant use in catalytic converters for gasoline engines. Additionally, the ongoing substitution of palladium with platinum in autocatalysts poses a long-term challenge to palladium’s market position.

UBS analysts anticipate that palladium prices will hover around $900 per ounce over the next 12 months, reflecting expectations of a slightly oversupplied market. While some investors may anticipate a short-term recovery, UBS remains cautious, emphasizing the persistent structural challenges facing palladium.

Analysis:

UBS Global Research’s bearish stance on palladium despite increased ETF investments and European demand signals potential challenges for the metal’s long-term price trajectory. The structural challenges in the automotive sector, coupled with the ongoing substitution of palladium with platinum, are expected to weigh on palladium demand. Investors should be cautious and consider these factors when making investment decisions related to palladium.

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