When the current outbreak of angst biting at the heels of the markets runs its course, and traders morph back into risk accumulation mode, you can count on palladium outperforming the other precious metals. During 2009, gold rose 27%, silver 49%, platinum 56%, and palladium a whopping 117%, and I expect this outperformance to continue.
Palladium, named after Pallas, the Greek goddess of wisdom, has been mined in South America for over 1,000 years, was discovered as an element in 1804, and saw jewelry use start in 1939. But it really came into its own when a nascent environmental movement got legislation passed requiring catalytic converters on all new American cars.
Toyota’s USA’s president, Jim Lentz, told me over a couple of beers that the US car market will recover from the present 12 million annual units to 15 million by 2015. (You can forget the drug induced haze of 20 million annual units free money brought us, returning in our lifetime). Fewer than one million of these will be hybrids or electrics. That means industry demand for catalytic converters is ramping up by 3 million units a year.
Which catalyst will the auto makers choose? Palladium at $467 an ounce or platinum at $1,510 an ounce? Hmmmm, let me think. They do have new management now, so maybe they’ll figure it out. Some 80% of the world’s palladium production comes from Russia and South Africa, dubious sources on the best of days. That means that a long position in this white metal gives you a free call on political instability in these two less than perfectly run countries.
Also known as the “poor man’s platinum,” demand for palladium for jewelry in China has been soaring with the growth of the middle class. On top of this, you can add demand from the new palladium ETF (NYSEARCA:PALL), which with a launch of $250 million, will soak up a hefty 8% of the world’s palladium production.
Those set up to trade the futures can play the June contract, where a margin of $3,713 gets you a 100 ounce exposure worth $46,700. If you are looking for something to stash in your gun safe, bury in the backyard, or give to the grandkids on their college graduation, get physical. You can buy 100 ounce bars at $50 over spot, or Royal Canadian Mint one ounce .9995% fine palladium Maple Leaf coins at $50 over spot. And yes, you can even buy them on Ebay.