Editor's Note:  Today, our most recent addition to the Wealth Daily team, Adam Sharp (who's back after attending the high-level Buttonwood Gathering in New York) brings us his latest insights. Instead of rehashing the same stale investment ideas you hear about on CNBC or read about in the financial rags, Adam is drawing on a world's worth of market data to spotlight profitable trends. Below, you'll read about one of the lesser-known hard assets, palladium, and Adam's case for making this "underdog metal" a part of your portfolio.

Regards,

Sam Hopkins
International Editor

—————————————————————

Big Potential in "Little Platinum"

Palladium is an underdog among precious metals.

It has some unique attributes that set it apart from the "big three" — gold, silver, and platinum. So if your goal is to have a diversified portfolio of precious metals, investing in palladium can be a good choice.

Before you go out and buy palladium bullion/coins, it's important to realize that prices for this metal are quite volatile, and fluctuations are more dependent on industrial demand than metals like gold, where industrial use is considered a secondary market mover by many investors.

In 2001, the price of palladium peaked at over $1,100 per ounce. It currently trades around $320. A drop like that will pique the interest of contrarian investors, and cause heartburn in more conservative ones. . .

Rightly so, on both counts.

Palladium is a more speculative play, and therefore research and risk tolerance are prerequisites to investing.

For now, let's take a look at what palladium is, how its price moves, and how you could benefit from palladium in your portfolio.

Palladium is a member of the platinum metals group and it has many industrial uses (more below). I would classify it among the riskier metals as an investment class, but the potential upside is great. As the world continues to print money in an attempt to stimulate economies, palladium could benefit from both increased industrial demand and inflation.

I don't like this inflation-driven "recovery" 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 artificially stimulating auto-sales around the globe, palladium prices have rebounded with demand.

Growing Popularity in Jewelry

Palladium is also widely used in the jewelry market. It's an essential ingredient of white gold and is a cheaper alternative to platinum. Palladium is very similar to platinum, with the main difference being that palladium is a bit less dense. It is used in fine jewelry and is starting to replace its more expensive cousin as the base metal in engagement rings and other products. It's easy to see why jewelry makers and consumers like palladium: It sells for around $320/ounce, compared to platinum at $1335/ounce.

Palladium is also widely used in the fields of electronics, dentistry, and medicine.

According to Stillwater Mining:

Palladium-containing components are used in virtually every type of electronic device, from basic consumer products to complex military hardware. Although each component contains only a fraction of a gram of metal, the sheer volume of units produced results in significant consumption of palladium. The largest area of palladium use in the electronics sector is in multi-layer ceramic (chip) capacitors (MLCC). Smaller amounts of palladium are used in conductive tracks in hybrid integrated circuits (HIC) and for plating connectors and lead frames.

Investing in Palladium

Coins or bars are the most common ways to invest in this metal. The Royal Canadian Mint makes beautiful .9995% pure palladium coins that are legal Canadian tender. But they're pretty hard to find these days. A more accessible (and cheaper) option is palladium bars from reputable mints, like Pamp Suisse. I recently bought some of these 1-ounce bars from American Precious Metals Exchange (www.apmex.com), an online metals dealer I've had good experience with. (We have no business relationship.) APMEX has the best prices I've been able to find for small-to-mid level buyers like me.

From what I've seen, they ship what is promised and on time.

Palladium Stocks?

There are few pure plays in the palladium mining world, so investing via common stock is more difficult than gold or silver. The biggest player in the U.S. is Stillwater Mining (NYSE: SWC). They operate a large mine in Montana, which is one of only three large-scale production sites in the world. North American Palladium (AMEX: PAL) is another relatively pure play, though they are much smaller and more speculative than Stillwater.

Russian Stockpiles of Palladium — Potential Problem?

Some of the most productive palladium mines in the world are located in Russia. And their government has not been very forthcoming about levels of production or stock. Some people think Russia's stockpile of the metal is more sizable than the market has priced in, and that it may continue dumping metal on the market to generate cash during a lull in oil prices.

However, it is in Russia's best interest not to release too much metal at once into the market, to ensure prices stay at profitable levels. And Russia doesn't have a monopoly on palladium by any means — there are large mines operating in North America and South Africa, as well. But Russia's dominant status is a factor to consider when investing.

Time to Buy?

Palladium's had a nice run over the last year, and we think it has more room to run. However, it may be prudent to wait for a pullback to the $280-$300 level. If the dollar's rally continues for a few more weeks, that should provide a great opportunity to scoop some up. Price fluctuations can work in your portfolio's favor if you're patient. And we'll keep you up to date.

Good investing,

Adam Sharp
Analyst, Wealth Daily

Editor's Note:  From the obvious to arcane in the investment world, Ian Cooper's Pure Asset Trader service tells readers just how to capitalize. It may be an oil company you hadn't heard of, or an investment opportunity like palladium that the financial media is just now getting wind of. . . Pure Asset Trader readers are always out in front and reaping the benefits of Ian's 94% success rate! To prove PAT to you, Ian is offering five months of timed recommendations — free! Click here to learn more.