While gold prices are kind of over the hill, one other metal gives a clear sign of life: palladium. This week the price of palladium increased by 4%, while gold sank a few percentages again. Why is palladium so popular all of a sudden and is its popularity sustainable?
source: Kitco.com: palladium last 3 days
Palladium was first discovered by William Hyde Wollaston back in 1803. It is a rare and lustrous silvery-white metal named after the asteroid Pallas, discovered a year earlier. Palladium has certain characteristics that makes it very interesting for all kinds of industries. The main user of palladium is the auto industry. Softer than platinum, ductile and resistant to oxidation and high temperature corrosion, palladium is useful in eliminating harmful emissions produced by internal combustion engines. Other sectors using palladium are electronics, dentistry and jewelry.
source: Kitco.com palladium 5 years
Since the low in December 2008 the price of palladium went up 80%. In a previous article I described why silver is more attractive than gold. The same reasons apply to palladium. However, there is another reason why you should prefer palladium over gold. The following chart will tell you which reason that is (Source:www.infomine.com).
Russia is the dominant player on the palladium market. Total market share in the world production is 44%, followed by South Africa (37%) and Canada (6%). The spike in the chart above, in the year 2000, was caused by a possible Russian export ban. At that time Russia had trouble meeting its production targets. The Russian government announced that exports of palladium in 2001 could be diminished to almost zero. The automobile industry panicked and started hoarding the material. Prices skyrocketed from $250 to $1,100. Eventually Russia increased production and managed to calm down the markets. The price of palladium fell back $200 again.
So Russia controls more or less the palladium market. The fact that Russia is not the most stable and reliable business partner in the world (ask Ukraine what happened to its gas prices) together with the increasing demand for "cleaner" cars is reason enough to prefer palladium over gold.
Investors are done with gold. Since the price of gold declined from $1,900 to less than $1,400 right now, people who want to invest in metals are searching for smaller and more attractive industry metals. The demand for palladium has shown to be healthy even in an economic downturn. Almost 90% of the demand for palladium comes from the industrial sector compared to only 10% of gold.
Decreasing palladium stocks in Russia and increasing demand for car sales will further increase the price of palladium. Russia controls almost half of the palladium market which is also a factor to bear in mind. Demand is much easier to monitor than demand for gold since 90% of the world production is being used in the industry. This makes palladium a much safer investment than gold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.