Investing in a Palladium Rally

Written By Brian Hicks

Posted July 22, 2013

Palladium prices have hit a high, and it’s likely they will continue to rise for quite some time.

palladiumFor September delivery, palladium rose 0.4% to $2.60, hitting $734.75 an ounce. Skeptics didn’t think this would happen after the precious metal topped out at $736.60 last month.

With palladium rising, investors are wondering if they should jump in and catch the wave. Experts are recommending it, according to a Citi report:

“Palladium continues to be our favored metal within the precious space, with significantly more positive fundamentals continuing to provide a positive backdrop.”

So what specifically is causing the hike in palladium?

South Africa, the largest producer of palladium, is in a labor strike right now, which means supplies are down. And Russia, the second largest producer, has decreased its output by 100,000 ounces.

Auto manufacturers, an industry that relies heavily on the precious metal, is also seeing increased sales. General Motors (NYSE: GM) and Ford Motor Company (NYSE: F) saw sales of their pickup trucks at a 67-month high last month. Demand is high and supplies are low for palladium, which is the perfect recipe for investment gains.

The Attractiveness of Palladium Continues…

Palladium isn’t just attractive to investors because its demand is high and supply is low. It’s also a hard asset, just like gold. Hard assets keep their value even in times of inflation, which can safeguard a portfolio from bottoming out.

The auto industry’s recovery in sales is running parallel to the rising housing, construction, and energy sectors. With everything growing after the economic devastation that occurred a few years ago, it’s only natural to see the demand rise for the most used metal in those markets.

It’s likely you’re thinking, “Well, once production is up, it will rise to meet demand, and that should be right around the corner.” While you’d be right on the first part, the latter isn’t expected for a while.

The mining sector hit a 30 year low in 2001, and right now, miners are once again in a similar position. Many mines were closed because production was outpacing demand. This may seem like the right move in a declining economy, but the long term consequences end up shooting up metal prices, as we’re seeing with palladium.

Now, as the demand for palladium is rising, mines are starting to rebuild and expand, which takes a lot of time. This means palladium mines aren’t going to be able to produce the amount needed for a long time to come.

Palladium Investing

The future is bright for palladium, so how will you invest?

Palladium bullion is for low-risk investors. With bars or coin, you’ll pay the market price plus either a dealer markup or a transaction fee. When you’re ready to sell, you’ll receive market price at that time minus the transaction or dealer fee.

Palladium mining stocks are another option. While you can choose a stock traded on the American exchange, such as Stillwater Mining Company (NYSE: SWC), there are others. South Africa has the largest reserve, with Russia following closely behind.

Remember, mining companies are low right now, but as they grow, prices will rise. Buy low, sell high is the investment rule making palladium mining stocks quite popular right now.

Palladium futures, or holding shares in a mining firm, are another way to get into palladium. Futures are contracts to buy a certain amount of palladium at a predetermined price with a future delivery date. It’s highly volatile. You could end up losing your entire portfolio.

Alternatively, you could make out big if it works out in your favor, as many are predicting. Futures trade on the NYMEX of TOCOM Exchange. They are affected by metal suppliers, commercial users, and speculating investors.

With this investment, you have the potential to make a lot of money with a small investment in a very short amount of time. The best time to buy futures is when prices are projected to rise, just like right now. Selling futures is best when prices are expected to fall.

The best investment avenue for you depends on the risk you want to take. Bars and coins have the lowest investment risk, while futures have the highest.

If you’re new to investing or palladium, you may want to start with the bullion/coins and dabble in the medium risk mining stocks until you get your feet wet. Once you’ve learned the market and gained the confidence you need, you can then look into futures.

Palladium investing is up, so catch the wave, and start cashing in before it’s too late.


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