Palladium as an Investment: Worth Considering?

Palladium is one of the lesser-known precious metals. But it has some unique features that differentiate it from the “big three”: gold, silver, and platinum. So if your goal is to have a diversified portfolio of precious metals, palladium is worth a look. But before you buy, it’s important to realize that prices are quite volatile, and they depend on industrial demand more 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. Research/homework is required. So consult a professional you trust if you don’t feel comfortable. Here’s a chart showing palladium’s price 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).

Note: there are some issues with supply/stocks of the metal. This is due to the Russian government not being very forthcoming about their production and stock data. Palladium is a rare metal, and some of the most productive mines are in Russia. It seems in Russia’s best interest to not release too much at once onto the market, to ensure prices stay at profitable levels. Some have speculated that the Russians have larger supplies of palladium stockpiled than is commonly believed. So it’s important to at least be aware of this aspect of the market.

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 Palladium (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 management, so do your research before buying and realize it’s a very speculative play.

More info:

• 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.

Comments

[Econ Base:]

Palladium may be hardest to dspose off. So why bother when other more liquid instruments in Platinum, Gold and silver exist?
portfolioforlife.blogs.../

Jun 14 11:08 AM

[yellowhoard:]

Palladium will be the metal of choice for catalytic converters in the future.

If gold doubles, palladium will triple, or better.

Jun 14 01:21 PM

[ceattlechris:]

Thanks for the link to apmex.com

I've done some business through bullion.nwtmint.com/ and had great service, though their premiums are higher than hitting the coin shows by quite a bit. Pd is very hard to find in coin form. Another S.A. article recommended SWC as a Pd play as well.

Jun 14 02:06 PM

[Market Sniper:]

Might be worth considering as a speculation/trade. However, would not consider palladium for core physical precious metals holdings. Too difficult to unload when the time comes. Not a recognized monetary metal.

Jun 14 02:43 PM

[PutneyHillYank:]

Come on all you know is theTrash of the picks, you want a good plat paladium pick try Impala outa SA

Jun 16 07:17 AM

[Leonard Gol...:]

There is also an ETF which trades in London(1 share =1/10 oz). The yahoo symbol is PHPD.L and the US pink sheet is ETMSF.PK . One of the US etf mamagers(I forget which one) has filed for registering a US version of the London etf.

Jun 16 02:36 PM

[Adam Sharp:]

I'm aware of Impala. But what % of their business is palladium? Not very high, as I understand it. So it's not a very good way to get exposure to palladium. If you want exposure to all platinum group metals, then sure. Impala is probably a good way to do that.


On Jun 16 07:17 AM PutneyHillYank wrote:

> Come on all you know is theTrash of the picks, you want a good plat
> paladium pick try Impala outa SA

Jun 16 03:14 PM

[Adam Sharp:]

Palladium only makes up around 10% of Impala's mining revenue, according to this doc:

www.implats.co.za/im/f...

So it's not a great way to get exposure to just palladium. Vast majority is platinum.


On Jun 16 07:17 AM PutneyHillYank wrote:

> Come on all you know is theTrash of the picks, you want a good plat
> paladium pick try Impala outa SA

Jun 16 09:51 PM