Investing in Palladium 2013

Brian Hicks

Updated June 12, 2013

Have you ever considered investing in palladium? Do you even know what palladium is? No problem, I imagine many people have never heard of it. Palladium is technically considered a rare earth mineral or element. It is white in color and fairly rare.

Palladium also has a number of unique and interesting applications. The metal itself is very pure, which is one of the main reasons why it is one of the scarcest precious metals in the world.

There is growing popularity in palladium jewelry, since it is both lightweight and strong, capable of holding all kinds of gemstones, even in the most delicate of settings. It is also a critical component in new automobiles, cell phones, and even computers.

Palladium Prices Continue To Grow

Palladium prices have been rising lately. Just in the last few days, we have seen the precious metal hit its highest level in more than two months. This is coming at a time when many other precious metals like gold and silver seem to be more or less stagnating. In fact, palladium has recently been significantly outperforming both gold and silver, and many analysts and experts expect this trend to continue.

One immediate factor contributing to palladium’s rise in price is thought to be the economy. The U.S. economy is doing considerably better than it has in some time. Standard and Poor’s recently raised its outlook on the safety of U.S. debt, for example.

This has appeared to calm fears, since its report mentioned the U.S. economy is very resilient and the dollar still has credibility (especially since it is the key reserve currency in the world).

This solid economic news is thought to have fueled both the recent stagnation in gold and silver prices, along with the increase in palladium. The idea is that as the economic recovery continues, more auto makers and jewelers, along with cell phone and computer manufacturers, will be able to invest and build more of their wares.

Since all of these thing use palladium as a key component, this will be good for the price. It is simple supply and demand.

Continued Palladium Growth Expected

One of the main drivers for the bright outlook in palladium prices is the rebound of the auto manufacturers in the U.S. as well as continued worldwide demand for cars. With U.S. automakers now hitting record highs, their recovery from depths of the crisis seems to be complete.

Additionally, the record low interest rates make this a good time for many Americans to finance new auto purchases. Not only this, but China has a huge and rising demand for automobiles and a significant air pollution problem. The situation is also similar in India.

The air pollution problem, particularly in the developing world, is another significant driver of increased palladium prices. The metal is most often used these days as a method of trapping carbon particles that are normally emitted by combustion engines. To meet the new higher air quality standards that are now being demanded, and also to help reduce current pollution levels, palladium is an absolute necessity.

There is also a serious concern about disturbances in the supply of palladium. Some of the largest palladium mines are located in South Africa, but they are beginning to experience significant labor disputes. Many of these mines are becoming unprofitable to operate, and the owners would like to shut down or at least scale back operations. Of course, the unions will not just sit idly by and allow this to happen. Either way, it means a likely slowdown and disruption in the current levels of supply coming out of South Africa.

There also may be political factors at play here. China is a major player in palladium and rare earth minerals. The nation is certainly not above playing games to help manipulate prices, even cutting off exports of these metals completely back in 2010. It is very possible we could see something like this again, especially now that demand for palladium continues to rise during a time of apparently dwindling supply.

Supply & Demand Comparison

From a strict supply and demand analysis, things also look primed for a continued increase in palladium prices. Global stocks of palladium have been shrinking and are currently sitting at a deficit to demand of more than 1.1 million ounces which is the largest such deficit since 2001. With the supply disruptions that were discussed above, this means that stockpiles will continue to fall, causing further shortages.

Russian palladium producers are also indicating they will reduce output. In fact, the world’s largest palladium producer, Norlisk, has announced its 2013 output of the white metal will be reduced by approximately 100,000 ounces.

Additionally, the Russian government has been reducing its palladium sales over the last several years, presumably to meet the increasing in-country demand. These palladium sales are expected to end completely by next year.

Investors Have A Unique Opportunity

Right now is an excellent opportunity for investors to get in on palladium. In addition to the fundamental factors already discussed, things even look good on a technical basis. While prices have been increasing recently, the metal has just completed what appears to be a triple bottom technical formation, which could be a sign of strong price increases and even a future break out to the upside.

A great way to become involved in palladium is through exchange traded funds. The most popular ETF in this category to check out would be ETFS Physical Palladium Shares (NYSE: PALL). You may also want to consider the Sprott Physical Platinum and Palladium Trust (NYSE: SPPP), which might be appealing to some investors as a trust.

Another way to play this industry would be to consider investing directly in some of the mining stocks. Many of the following companies also have exposure to additional precious metals, so be sure to do your own research and due diligence:

  • Anglo American Platinum Ltd. (OTC: AGPPY)

  • North American Palladium Ltd. (NYSE: PAL)

  • Stillwater Mining Company (NYSE: SWC)

  • Aquarius Platinum (OTC: AQPTY)


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