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TheStreet Open House

How To Invest in Palladium

Stock quotes in this article: PALL

NEW YORK ( TheStreet ) -- With gold prices hitting record highs, palladium is becoming a cheaper alternative for investors who want exposure to precious metals without the high price tag.

Palladium prices have popped almost 10% year to date after hitting a low of $395 and a high of $571. Palladium is typically used in auto manufacturing and prices are dependent on car sales and an improving global economic recovery.

The advent of the physically backed palladium exchange-traded fund, ETFS Physical Palladium Shares (PALL), however, has provided an easier way to invest and trade palladium. Since its creation in early January, the ETF has amassed a total of 788,505 ounces of palladium. The more metal ETF Securities removes from circulation, the higher prices rise. Shares have risen 3.2% year to date and the ETF currently has $358 million assets under management.

For investors looking for exposure to a riskier precious metal, many analysts recommend palladium. Soma sekhar Chereddy, analyst at Karvy Global Services, dubs the metal his favorite for 2010.

What is your long-term and short-term price target for the metal?

Chereddy: In 2010, we think the metal will touch around $675. By the end of this year, we think prices will be between $650 and $675. And over the next five years, we expect palladium to touch $1,000 an ounce. It's basically dependent on the long-term supply and demand situation. We think prices are going to double in the next five years.

What are some of the risks? What if China's growth slows resulting in deceasing auto demand, how do you hedge against those risks?

Chereddy: So 50% of demand comes from auto demand ... China just accounts for 13% for the auto production in the world. So ... we expect a possible slowdown in China not too dent prices so much ... Other metals, such as nickel, copper, are mainly dependent on China, but palladium is a different case, palladium is not dependent on China.

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