Palladium: The New Platinum

I am sure you are familiar with precious metals like gold, silver and platinum, but there is one more metal that gets ignored, palladium. Palladium is a member of the platinum family and is, actually, much more rare than platinum. This metal just might be one of the best options for those looking to invest in precious metals, but it is often ignored.

The metal is ignored because it is viewed as cheap, at $290 an ounce, but it is cheap for a reason: there is no demand right now. That, I believe, is about to change as automakers are looking to save money and make their products cheaper. Palladium's big brother, platinum, is used in catalytic converters to lower emissions, but at almost $1,300 an ounce it is extremely expensive. However, palladium does the same thing at 25% of the cost and it is rarer than platinum. The fact that there is a very strong possibility that automakers will dump platinum for palladium is reason enough to buy the metal. The last time this happened, palladium went to the moon.

However, the story just gets better because palladium is used for other things too. For some reason palladium can hold up to 9 times its weight in hydrogen which makes it useful for those exploring hydrogen powered cars, but its ability to lower emissions also makes it desirable for those industries looking to go green. For that reason it is a nice green play, for now, while it is cheap. Also, the major suppliers of palladium are Russia and South Africa, with Russia being the primary supplier. As you know, Russia can be hard to deal with so the supply could be cut off at anytime, making the case of ownership of the metal even stronger.

The metal is also used in jewelry, which may not excite you right now, but consider this--China has emerged from the economic slump and platinum is very popular there. As I just said though, platinum is very expensive which makes palladium, which has many of the same characteristics as platinum, attractive for its low cost. So far palladium has performed very well this year coming from a low of $185 to $290 at the moment, it was up yesterday when other metals were down which makes me think Detroit is moving in its direction now.

So, this metal is a green play, an automobile play, a jewelry play and, essentially, a recovery play which makes now a very good time to be a buyer. Last year the metal was twice as expensive, but like with all metals last year it got pummeled. The biggest problem is how do you buy this metal, there is no ETF and most people do not want to buy futures contracts. The only real way to buy it is physically, which is how I own mine, or through buying companies that manufacturer it, like Stillwater Mining (SWC).

If you want to buy the physical metal it is a bit tougher because there are only 2 forms to buy it in, the Canadian coin or the Pamp Suisse bar, both are sold in 1 ounce increments. Unfortunately, Canada does not make the coin anymore and they only had 3 years of production, 2005, 2006, 2007, and the 2007 version is considered ‘rare’ and sells for a premium. Actually all Canadian palladium coins sell for $100 premium, but the Pamp version only sells about $30 to $50 over the spot price. For the best place to buy these products go to a reputable dealer. You can get them on Ebay, but if you do not know what you are doing go to a dealer.

Like I said, I believe that the transition to palladium is on its way and I have no idea if that is a fact or not, but what I do know is I like the price action lately. I believe that if you get in and hold it long-term you could potentially do very well. It gives you inflation protection, but you do not need inflation to profit with all the alternate ways the metal could appreciate just makes this metal too good to be true, in my opinion.

Disclaimer: I do not own any of the stocks listed, nor do I have any agreement with any website listed in this article. I do own the physical metal and am actively adding to my position.

Comments

[coolerupnorth:]

A new mine (PLM) in northern MN may start mining palladium, platinum, copper and nickel very soon. They should get word about the permits next month. This could be one of the only sources in the US for some of these minerals. Sounds strategic to me.

Aug 26 09:36 AM

[Tony Petroski:]

"Palladium's big brother, platinum, is used in catalytic converters to lower emissions, but at almost $1,300 an ounce it is extremely expensive. However, palladium does the same thing at 25% of the cost and it is rarer than platinum. The fact that there is a very strong possibility that automakers will dump platinum for palladium is reason enough to buy the metal."

Makes sense except, what have they been waiting for?

This makes less sense:

"For some reason palladium can hold up to 9 times its weight in hydrogen which makes it useful for those exploring hydrogen powered cars, but its ability to lower emissions also makes it desirable for those industries looking to go green."

You've shown your mettle Ray. Nice going.

Aug 26 09:39 AM

[prisser:]

2009 Palladium Canadian Maple Leafs are in production and are available to buy from dealers , some offer them at about $30 over spot.

Aug 26 09:55 AM

[DougM:]

Um...palladium, along with platinum and rhodium are *already* used in catalytic converters. Also, note that the reactions are catalyzed by the exposed surface area, so typically they're plated around ceramic cores. In 2007 nano-technology was introduced to reduce the amount of metal needed for a given catalytic surface area. Re. cold fusion, don't hold your breath. Re. hydrogen storage, this presupposes that we ever transition to hydrogen as a fuel. This is extremely unlikely due to the lack of credible hydrogen sources (most is produced from nat gas), the difficulty of transporting hydrogen by pipeline (the small molecules escape too easily), the high cost of hydrogen vehicles, and because there are too many easier ways to use any new hydrogen source from, say, nuclear or renewable power, such as replacing nat gas in oil refineries, fertilizer production, coal or biomass gassification, synthetic liquid fuels.

Aug 26 11:40 AM

[huangjin:]

Pamp Suisse came out with a 1kg bar this year.

Aug 26 02:50 PM

[MikeyLV:]

IT's also in Kitco's pool accounts

Aug 26 03:17 PM

[kohalakid:]

Palladium also available in NYMEX good delivery 100 oz bars.

Offer a few Russian ones at spot plus $8.

Aug 26 07:08 PM

[Mark Anthony:]

Ray:

Palladium absorbs up to 900 times its own volume of hydrogen, not 9 times. It could be just a typo in your original article.

I think I am probably one of the most outspoken advocator of palladium investment, once I spent time study the fundamentals of the market, starting with my very second Seeking Alpha article:

seekingalpha.com/autho...

The looming depletion of the Russian government stockpile palladium, which MUST happen, is a gigantic positive factor for palladium. All palladium supply/demand study indicates that without this annual Russian government stockpile sale of palladium, the global palladium market is in a big structural deficit.

Palladium's bright future in Cold Fusion application, humanity's only real hope of overcoming the looming Peak Oil energy crisis, is another gigantic positive factor for palladium. Cold Fusion research is picking up momentum quickly in recent years, despite of lack of government research funding support, as piling experimental evidences in over 2 decades prove beyond reasonable doubt that the Cold Fusion phenomena is real. CBS 60 Minutes aired a program on Cold Fusion on April 19, 2009.

www.cbsnews.com/video/...

More over, the progress of Cultured Diamonds (versus mine diamonds) means it is now possible for virtually every newly-wed bride in the world to fulfill the dream of owning a diamond wedding ring, as the supply of diamond is no longer limited. The bottleneck will be available white precious metal (platinum and palladium) to go with the diamond rings.

This diamond revolution alone will be a gigantic new demand on palladium and platinum. 99% of the world's newly wed couples can not afford a $5000 diamond wedding ring. But 99% of them CAN afford a $200 diamond wedding ring, especially as it is a once in a lifetime gift.

Just remember three things in palladium: The physical palladium metal, and mining stocks SWC and PAL.

Aug 28 07:28 PM

[The Goy:]

PAL and SWC, what are their costs to pull plladiumn out of the ground???? MUCH MUCH higher then the 300 it is trading at.

Aug 28 07:35 PM

[Mark Anthony:]

BKDC:

Russia's palladium mineral reserve and annual production is no longer a state secret. Norilsk Nickel now publishes these data:

www.nornik.ru/en/our_p.../

Russian government stockpile of palladium is still not published. But outsiders have obtained pretty accurate estimate. Russian government did not obtain palladium from space aliens, nor is the metal produced alone. It is produced as a by-product of nickel mining. There is an expected ratio of how much palladium you could produce, if you have produced a certain amount of nickel.

By estimating how much nickel had been produced during the Soviet Era, you can get a good estimate of how much palladium was accumulated. Since the Soviet didn't use a lot of nickel and did not export a lot either, and they had inferior technology extracting the palladium, the annual production of palladium during Soviet Era was probably way much less than What Norilsk Nickel produce now: about 3 million ounces per year in recent history.

Any reasonable estimate would suggest that Russian government has already exhausted the palladium stockpile, after nearly 2 decades of massive annual selling. Whatever remains, it's unlikely they will sell at current low palladium price.

Read this 2003 paper by Alan Williamson on Russian palladium stockpile size estimate:
www.lbma.org.uk/docs/c...

Aug 28 07:38 PM

[The Goy:]

also, Palladium dropped because all the auto companies were selling it to raise money to stay in business until uncle sam could bail them out. There are many things wrong with your article(9 times, more rare the pall, russia stockpiles and catalytic convertors), but the investment idea is right, IMO.

I am a large owner of PAE from sub 200, and have sold very little of it. I don't understand the PAL and SWC investments as I can not grasp how they make any money with their cost structures.(It does not mean the stgocks won't be HR's, I just don't understand them and would rather be in the metals).

Aug 28 07:44 PM

[Ray:]

Thanks for the comments Mark. You are correct, I wrote the article quickly, my fault, but I am an advocate of Palladium as well. It is my largest physical holding and I add to it as often as I can. I think it goes much, much higher.


On Aug 28 07:28 PM Mark Anthony wrote:

> Ray:
>
> Palladium absorbs up to 900 times its own volume of hydrogen, not
> 9 times. It could be just a typo in your original article.
>
> I think I am probably one of the most outspoken advocator of palladium
> investment, once I spent time study the fundamentals of the market,
> starting with my very second Seeking Alpha article:
>
> seekingalpha.com/autho...
>
> The looming depletion of the Russian government stockpile palladium,
> which MUST happen, is a gigantic positive factor for palladium. All
> palladium supply/demand study indicates that without this annual
> Russian government stockpile sale of palladium, the global palladium
> market is in a big structural deficit.
>
> Palladium's bright future in Cold Fusion application, humanity's
> only real hope of overcoming the looming Peak Oil energy crisis,
> is another gigantic positive factor for palladium. Cold Fusion research
> is picking up momentum quickly in recent years, despite of lack of
> government research funding support, as piling experimental evidences
> in over 2 decades prove beyond reasonable doubt that the Cold Fusion
> phenomena is real. CBS 60 Minutes aired a program on Cold Fusion
> on April 19, 2009.
>
> www.cbsnews.com/video/...
>
> More over, the progress of Cultured Diamonds (versus mine diamonds)
> means it is now possible for virtually every newly-wed bride in the
> world to fulfill the dream of owning a diamond wedding ring, as the
> supply of diamond is no longer limited. The bottleneck will be available
> white precious metal (platinum and palladium) to go with the diamond
> rings.
>
> This diamond revolution alone will be a gigantic new demand on palladium
> and platinum. 99% of the world's newly wed couples can not afford
> a $5000 diamond wedding ring. But 99% of them CAN afford a $200 diamond
> wedding ring, especially as it is a once in a lifetime gift.
>
> Just remember three things in palladium: The physical palladium metal,
> and mining stocks SWC and PAL.

Aug 30 09:29 PM

[Ray:]

I agree. I was just giving suggestions to the equity players, but your best bet is buying physical. I love it under $300. Over $300 I like it, but not as much. I have an average of about $220 or so.


On Aug 28 07:44 PM The Goy wrote:

> also, Palladium dropped because all the auto companies were selling
> it to raise money to stay in business until uncle sam could bail
> them out. There are many things wrong with your article(9 times,
> more rare the pall, russia stockpiles and catalytic convertors),
> but the investment idea is right, IMO.
>
> I am a large owner of PAE from sub 200, and have sold very little
> of it. I don't understand the PAL and SWC investments as I can
> not grasp how they make any money with their cost structures.(It
> does not mean the stgocks won't be HR's, I just don't understand
> them and would rather be in the metals).

Aug 30 09:31 PM

[JH24:]

Sounds like you are a tad "sour" on Palladium...

Who cares why it went up?

The bottom line here is that Palladium has risen more than Gold and Silver COMBINED this year!

As of today, its up over 55% for the year vs Silver's paltry 26%.

If Gold makes it to 1200 as most are saying and Silver pushes to 25 in the next year or so, that would EASILY put Palladium well north of $600.

Do yourself a favor and buy some now.


On Aug 26 06:21 AM bkdc wrote:

> And the last time palladium went to the moon wasn't because of some
> massive shift from platinum to palladium in car manufacturing. It
> was because Russia declared a moratorium on palladium exports.

Aug 31 03:50 PM

[McGonicle:]

hey all,

i also like this play and enjoyed the article. My research indicates several things;

1) analysts are unsure whether stocks are depleted in the Russian govt. stores, though the CEO of bushvelt (SA producer, has new deposits online) says that after meeting the officials, Russia is limited to production only.

2) that the current price is high against demand and is the result of speculative interest

3) retail investors are going long and the guys in the know are short.

4) the price of palladium will dramatically rise and fall, as will its producers stock

5) though since it is a byproduct and the producers have diversity of production their stocks may be more stable (eg. also have gold, nickel or plat. production) than the metal price (or fall even as the metal rises, etc.)

6) demand will rise dramatically in the future timeframe (2+ years) with 60% coming from auto

7) however, there are tons of exploitable deposits in the discovery and acquisition pipeline and it is catalytic (so it is often recycled), so the supply potential is very high as well.

8) so my price vision is near 400$, with tons of downward pressure from large, prolific producers.

9) and high volitality along the way, potentially being +1000$/oz if politics disrupt supply (eg. russia, south africa. . .)

10) I bought a palladium wedding ring its great :)

enjoy any feedback. . .gl!

Sep 02 08:09 PM

[Mark Anthony:]

If you have not noticed it yet, you MUST read this latest news:
www1.investorvillage.c...

The Russian strategic stockpile palladium inventory is now confirmed completely DEPLETED. This is a paradigm shift in global palladium supply and demand:
seekingalpha.com/artic...

Just remember, in 2000, when the world hardly paid any attention to any precious metals, at a time when Russian still have 10M+ ounces of palladium stockpile, a mere delay of Russia's annual palladium stockpile sale and a FALSE rumor that Russian government will halt the stockpile sale, was enough to push palladium to $1100 per ounce in a matter of a few months!

Now the stockpile is truely depleted, so the stockpile sale is not just suspended, but ended for good, and there is way much more attention to precious metals. There is now a structural deficit in global palladium supply/demand. How high do you think palladium price will be pushed up to, this time?

Sep 04 01:33 PM

[The Goy:]

I would really like to talk to someone who knows palladium mining well, as I am getting a ton of different replies as to the cost of pulling it out of the ground. I have heard Rusiia is low cost producer but all the easy palladium is gone and it is much more expensive to get it out now(so they are lilke 400+ and ounce). The numbers I have heard on conference calls etc is way north of 500 per ounce to pull out(obviously it is a byproduct, so how they get these numbers is beyond me). Does anyone have a true number of the costs associated with mining it? If these numbers are remotely true, I don't see any reason why someone would want to sell it for sub 500. Any feedback is appreciated. Thanks.

Sep 04 01:48 PM

[Mark Anthony:]

The Goy:

Palladium is never produced alone. And different mines have different characteristics of ore grade and different ways of processing the mineral ores. So it is impossible to come to a uniform number.

Most palladium is produced as a by-product of nickel mining (Norilsk Nickel) or platinum mining (South African mines). SWC and PAL are the world's ONLY known producers who produce palladium as the main product and other metals as by-product.

When people talk about cost of palladium production, most time they accounted for by-product metal values. For example, in Q2, 2007, PAL reported palladium cost at merely $20 per ounce. It doesn't mean it costs almost nothing to produce the mine. The nickel and copper price was very high at that time, so after extracting the revenue from by-products like nickel, copper, platinum and gold, PAL figured the cost of palladium was $20 per ounce. Now that all the other metals are at much lower price, PAL probably should be looking at $350, $400 or even $500 as net production cost of palladium, net of by-product revenue.

SWC current runs the world's RICHEST PGM mine. The ore content is higher than 0.5 ounces of PGM metals per ton. Typical South African PGM mines contain only 3 grams PGM metals per ton, or 0.1 ounces per ton. But SWC's mine is 75% palladium and 25% platinum, versus South African mines being mostly platinum.

Sep 04 03:06 PM

[The Goy:]

Thanks for some of that, I understand the whole way the miners work with other metals and reducing costs, but when I spoke to PAL management, ther numbers were MUCH MUCH higher. Yes they lov talking about taking out every other commodity, but they really do not include a whole lot of expenses when they figure out the costs. I have learned that must companies will not reveal the all in costs. What I am trying to say, is that companies like PAL and swc are forced to sell their PAE and PLAT as if they don't they can't pay the bills and stay in business, but they might be selling them at a pretty step loss at these levels. (a reason I don't like them).

What I am looking for is someone IN the mining business, not the finance business(like us), who really understands the hidden costs, to answer. I think the costs for pulling it out and seperating them is much higher then the companies let on, and this is why they are constantly looking for new financiing.

That being said, go buy PAE.

Sep 04 08:09 PM

[31October:]

On Aug 28 07:28 PM Mark Anthony wrote:
...<snip>...
> Palladium's bright future in Cold Fusion application, humanity's
> only real hope of overcoming the looming Peak Oil energy crisis,
> is another gigantic positive factor for palladium. Cold Fusion research is picking up momentum quickly in recent years, despite of lack of government research funding support, as piling experimental evidences in over 2 decades prove beyond reasonable doubt that the Cold Fusion phenomena is real. CBS 60 Minutes aired a program on Cold Fusion
> on April 19, 2009.
> www.cbsnews.com/video/...

Without even commenting on cold fusion as humanity's only hope, I will point out AGAIN that the government has been funding research for two decades, as well as attempting to duplicate results in-house. The Navy's one result was to be a false positive, and twenty other reports have been made public. 60 Minutes is just another popdirt.com/mike-walla.../ fluff show. Since I am not cranially gifted, I will to listen to my old buddies from AP Chem & Physics who are now post-docs in physics and believe them over Leslie Stahl.
www.aps.org/about/pres...

My family's side jewelry business has seen zero increase in platinum demand, but we have slow demand for silver; and had an abnormal level of requests for custom gold pieces. I don't know what that means on a macro level. I look at pgm metals as industrial catalysts, but jewelry is a component.
Long SWC, and hoping that their cash-on-hand helps them overcome the GM damage.

Sep 14 12:22 PM