In past issues of the Daily Pfennig® edition, I have written many times about gold, silver, and even platinum, but there is one precious metal that tends to get overlooked by many investors, and that metal is palladium. Palladium is one of six metals that comprise the platinum group metals. These metallic elements have similar physical characteristics, such as being well suited for catalytic purposes, but you will find that for investment purposes, the most common are platinum and palladium.
Palladium’s primary application is in the automotive industry for the production of catalytic converters. Over half of the annual production of palladium goes toward making this piece of equipment, which helps to convert harmful exhaust gases into nitrogen, carbon dioxide and water vapor, which are much better for the environment. Of course, platinum is also used for catalytic converters, but palladium is a much lower cost alternative, at roughly half the price of platinum currently. With automotive demand set to increase due to more potential drivers in emerging market countries, as well as increases in emissions standards, the demand for palladium does not look like it will be slowing down anytime soon.
Palladium is also used to a lesser extent in the chemical sector, laboratory equipment, dentistry, electronics, glass manufacturing and, of course, jewelry (Source: U.S Geological Survey, Mineral Commodity Summary). Palladium is the least dense of the platinum group metals, and thus is commonly alloyed with gold to produce white gold. The last use of palladium is for investment, though this is a very small percentage in relation to the industrial applications listed above. According to Johnson Matthey, industrial applications account for 91% of palladium consumption, which makes for a very tight supply with increasing demand.
Things Can Go South In A Hurry
In 2012, 77% of the palladium mined came from Russia and South Africa, with another 13% coming from the United States and Canada (Source: U.S Geological Survey, Mineral Commodity Summary). With so few countries actually producing palladium, price volatility is inevitable should the threat of supply disruptions occur. These disruptions can cause panic in the automotive sector, and send prices shooting upward. This is exactly what happened in 2000-01, when the Russian government withheld supply due to political reasons, and palladium reached an all-time high of nearly $1,100/oz.
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Ford Motor Company was one of the biggest losers in this run-up as it had stockpiled palladium at these higher prices. When prices came back down, it is estimated that Ford lost close to a billion dollars (Source: BBC News). More recently, we have seen labor strikes in South Africa that have disrupted production in its mines over the last few years. These issues can come at any time and limit supply, thus driving prices up.
Even though palladium flies under the radar a bit for most investors, I believe this is an asset that could be poised to do very well in the coming years. The potential for record auto sales should lead to a limited supply of palladium in the marketplace for investors to get their hands on and, as mentioned above, geo-political risks could play a major factor going forward, leading to even more upward pressure on the price.
Thus far in 2013, precious metals, in general, have seen some major losses, with gold down 19%, silver down 25%, and platinum down 6%, as of this writing (Source: Bloomberg). In spite of this, palladium has actually posted a gain of 6% on the year. Think of the possibilities if it was actually a good year for precious metals as a whole. While gold failed to recover after multiple price takedowns this year, palladium rebounded each time it took a big dip.
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Unlike gold and silver, there are limited vehicles with which to purchase physical palladium. Most commonly, you will find it in the form of 1oz. Canadian Maple Leaf coins and various size bars.
If you are interested in obtaining some palladium for your financial portfolio, or any of our other non-FDIC insured metals,1 call our trade desk at 800.926.4922 to discuss your options. Currently, we have Maple Leaf coins and 1oz. bars available in palladium.
Assistant Vice President
EverBank World Markets, a division of EverBank
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