Sheets of palladium are pictured at a jewellery factory. File picture: Yuriko Nakao

London - The palladium-backed exchange-traded fund due to be launched in Johannesburg by Absa Capital on Thursday has already amassed 8,600 ounces of metal to back its shares, Absa's head of exchange-traded products said on Monday.

In an interview with the Reuters Global Gold Forum, Vladimir Nedeljkovic said that as the fund is open-ended, Absa has had to source enough metal to back any security in issue.

“We have already received pre-listing demand for about 8,600 ounces,” he said.

“This is just to start the fund. We shall see what the demand is on the first day.”

Palladium prices hit a 2-1/2 year high on Monday at $799.50 an ounce, driven by an ongoing strike in South Africa, worries over Russia's standoff with the West over Ukraine, and by the prospect of demand from Absa's new fund and another new ETF launching in Johannesburg this week.

Absa gained regulatory approval for its new fund late last year, but had been awaiting final confirmation of the listing.

It said on Thursday that it would list the fund this week.

Under South African Reserve Bank (SARB) regulations, the palladium held to back the fund must be sourced in South Africa.

Analysts have speculated that metal produced elsewhere could meet those regulations by being re-refined in the republic.

Nedeljkovic declined to comment directly on whether that would be the case.

“We can only be guided by the SARB written requirements, and they are specific that the metal needs to be produced, i.e., refined in South Africa,” he said.

“I cannot go into more details than that.”

“The requirement by the South African Reserve Bank is that the underlying (metal) has to be produced in South Africa - i.e., the fund can only accept good delivery bars/ingots that are South African, stamped by a South African refinery.”

Precious metals-backed exchange-traded funds, which issue securities backed by physical metal, have proved popular with investors in recent years, giving them exposure to the underlying asset price without having to store or insure it.

Palladium ETFs currently hold 1.632 million ounces of metal.

The metal is primarily used in autocatalysts and South Africa is the world's second-biggest producer behind Russia, with output of some 2.35 million ounces of the metal last year, according to research by refiner Johnson Matthey.

Nedeljkovic said that he expects the vast majority of demand for the fund - 95 percent - to come from institutional investors, judging by the company's experience of operating similar funds.

Absa also runs the platinum-backed NewPlat ETF, which saw enormous demand, growing to become the world's biggest fund of its type within just four months of its launch last April.

Nedeljkovic said Absa expects significant further growth in its platinum fund.

“After a small number of redemptions in January, we have had significant additional creations,” he said.

“In total (we have seen) 44,000 ounces of additional creations in 2014.

“We are currently sitting at approximately 956,000 ounces, and we believe that there is still a significant scope for additional growth.” - Reuters