Palladium as an Investment: Worth a Look?
Palladium is one of the lesser-known precious metals. It has some unique attributes that set it apart from the “big three”: gold, silver, and platinum. So if your goal is to have a diversified portfolio of precious metals, investing in palladium can be a good choice.
Before you go out and buy bullion/coins, it’s important to realize that palladium prices are quite volatile, and fluctuations are more dependent on industrial demand than metals like gold. In 2001 the price of palladium peaked at over $1100 per ounce. It currently trades around $250. A drop like that will pique the interest of contrarian investors, and cause heartburn in more conservative ones. Rightly so, on both counts. It’s a more speculative play, and therefore research/homework is required. Consult a professional you trust if you aren’t comfortable. This chart shows palladium prices from 1992-present:
Palladium is a member of the platinum metals group, and has many industrial uses (more below). I would classify it as among the riskier metals, but the potential upside is great. It may prove to be a good hedge against an inflation-fueled recovery. As the world continues to print money in an attempt to stimulate industry/consumers, demand and inflation could increase dramatically. This may in turn cause commodities like palladium to rise significantly, as governments artificially goose the markets. I don’t like this scenario, but am positioning myself for the possibility.
What is Palladium used for?
The primary industrial use of palladium is in the manufacture of Catalytic Converters (devices that clean automotive exhaust). This unique metal converts harmful gases, like carbon monoxide, into more benign ones like carbon dioxide. The decline in car sales is partially to blame for the fall in palladium prices. But with governments worldwide artificially stimulating auto-sales, palladium could see a spike in price as demand rebounds (temporarily, at least).
Growing Popularity In Jewelry
Palladium is also widely used in the jewelry market. It’s an essential ingredient of white gold, and is used as a cheaper alternative to platinum. Palladium is very similar to platinum, but a bit less dense. It makes fine jewelry, and is starting to replace its more expensive cousin as the base metal used in engagement rings and other products. It’s easy to see why jewelry-makers and consumers like palladium: It sells for around $250/ounce compared to platinum at $1250/ounce.
It is also widely used in the fields of electronics, dentistry, and medicine. According to Wikipedia:
Palladium is found in many electronics including computers, mobile phones, multi-layer ceramic capacitors, component plating, low voltage electrical contacts, and SED/OLED/LCD televisions. Palladium is also used in dentistry, medicine, hydrogen purification, chemical applications, and groundwater treatment. Palladium plays a key role in the technology used for fuel cells, which combines hydrogen and oxygen to produce electricity, heat and water.
How to invest in Palladium?
Coins or Bars are the most common methods. The Royal Canadian Mint produces beautiful .9995% pure palladium coins that are legal Canadian tender. But they’re pretty hard to find these days. A more accessible option is palladium bars from reputable mints like Pamp Suisse. I recently bought some of these 1 oz bars from Apmex.com, an online metals dealer I’ve had good experiences with (no relationship/interest/payola). They had the best prices I could find for small-mid level buyers like me. From what I’ve seen, they ship what is promised, and do it on time.
What about Palladium Stocks?
There are very few pure-plays in the palladium mining world, so investing in common stock is much more difficult than gold/silver. The only equity pure-play that I know if is North American Paladium (PAL). It’s a very small company, and recently had to shut down production because of low palladium prices. Supposedly they’re going to restart soon. I don’t own PAL, or know anything about the mgmt, so do your research before buying and realize it’s a very speculative play.
Russian Stockpiles of Palladium – Potential Problem?
Some of the most productive palladium mines in the world are located in Russia. And their government has not been very forthcoming about levels of production or stock. Some people think Russia’s stockpile of the metal is more sizable than the market assumes, and that it may continue dumping metal on the market to generate cash during a lull in oil prices.
However, it is in Russia’s best interest not release too much metal at once into the market, to make sure prices stay at profitable levels. Price could go down much further if demand continues to decrease as supply increases. Russia doesn’t have a monopoly on palladium by any means. There are mines operating in many countries (such as South Africa). So we’re not looking at a DeBeer’s type of situation here. But it is a factor to consider when investing. If the Russian government/corporations were to sell substantially more metal on the open markets, things could get nasty for spot prices of palladium.
- Jewelry professionals/buffs discuss the pros and cons of palladium and platinum
- Palladium article in Wikipedia
- ‘Sell Platinum, Buy Palladium’ – Bloomberg
Disclosure: Long Palladium, Gold, and Silver Bullion. No positions or interests in other companies/stocks mentioned. Price chart from of Kitco.com.