By Allen Sykora of Kitco News
(Kitco News) -- Palladium may well outperform platinum in the months ahead since palladium is the metal favored for gasoline-powered cars in China, which has become the world’s No. 1 car market.

Still, both metals are likely to keep trending higher on ideas that the global economy will continue to recover, with an extra lift from investment demand, analysts said.

Most-active December palladium on the New York Mercantile Exchange this week hit a peak of $564.35 an ounce; that was its most muscular level since April. This was up 41% from February's low of $399.95. October platinum peaked at $1,612.40 this week, its strongest level since June and up 9.5% since the low of $1,473 in May.

Some of the strength in the platinum group metals this week was on the coattails of a rally in gold and silver, as well as expectations for a pickup in manufacturing demand, analysts said. The main industrial use for the metals is in auto catalytic converters.

Carlos Sanchez, director of risk management with CPM Group, said the recent rally could stall for a while as some market participants sell to book profits on their gains.

“But with that said, I think prices will remain in an upward trend for the rest of this year and into the first quarter of next year,” Sanchez said.

At the same time emerging economies continue to expand, there is also growth in developed economies such as the U.S., even if it’s not as fast as many hoped for Sanchez said. Meanwhile, he said, investment demand remains strong.

In fact, when spot-metal prices fell on concerns about the European sovereign-debt hurting the economy earlier this year, there was little unwinding of positions in exchange-traded funds, said Daniel Wills, senior research analyst with ETF Securities. His company launched the first PGM exchange-traded funds in the U.S. early this year to go with already-established PGM ETFs in Europe.

“A lot of people are looking at platinum and palladium as a medium- to longer-term strategic play, particularly on the auto-sector market in China,” he said.

The ETFs trade like a stock but track the price of a commodity, with metal put into storage to back the shares. ETF Securities, which has become the world’s largest PGM ETF provider, reported physical holdings in all of its global exchange-traded products totaled 1,261,740 ounces for palladium at the end of last week, of which 754,510 is in the U.S. ETF. Total platinum holdings were 674,164, of which 299,968 were in the U.S. ETF.

A report from R.J. O’Brien said total palladium held in global ETFs as of the end of June totaled 24.1% of annual demand, up from 9.9% in 2008. Platinum in ETFs was 16.1% of annual demand as of June, compared to 12.1% in 2009 and 4.8% in 2008.

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