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Perfect Storm for Palladium Prices

Written By Brian Hicks

Posted June 14, 2010

palladium-1-oz-credit-suisse-barSometimes I mention palladium to investor friends.

I usually get puzzled looks and questions like, “Isn’t that stuff radioactive?”

Nope, it’s not radioactive. Palladium is a rare precious metal with lots of industrial uses, primarily in catalytic converters — the devices in every car that clean up exhaust fumes.

Interest from investors is growing as well. They’re buying bullion bars, like the 1oz Credit Suisse bar seen here ->

The popularity of the new physical palladium ETF (NYSE: PALL) is also adding to the demand squeeze.

The combined demand from investors and industry is pushing palladium prices higher… And we think there’s plenty of upside left.

Check out this chart showing projected palladium supply and demand:


See that red line? That’s projected demand, and it makes a pretty picture for palladium investors. The black part of the bar chart represents Russian stocks of palladium. From 2005 to 2009 they were dumping their stocks on the market, supressing prices. Now that they appear to have exhausted their stocks, prices should continue to move up.

The palladium demand picture

Palladium is closely related to platinum. It’s important to note that platinum is the only precious metal that has consistently maintained a higher price per ounce than gold — and that’s primarily due to platinum’s use in catalytic converters.

But palladium is rapidly becoming the metal of choice for the auto industry. It’s easy to see why, as it costs less than one-third as much as platinum does.

Auto demand currently accounts for about 50% of palladium demand. Spiking auto growth and new emissions standards in emerging nations like India and China will ensure strong demand for the foreseeable future.

Its use in electronics, jewelry, and dental work account for about 30%. Investors currently account for around 20% of demand, but I expect that number to rise in the coming years.

An underdog play

As the least well-known of the “big 4” precious metals, palladium doesn’t get the respect that gold, silver, and platinum do.

But in my opinion, it has the most upside of the bunch. We’ve been recommending it since it traded at $320/ounce in November 2009 (current price: $451/ounce).

As palladium demand from all sides continues to rise, the price will too.

It’s emerging as a way for investors to store wealth, hedge against inflation, and speculate on industrial demand.

My friend Luke Burgess just released a report on his favorite ways to play the palladium demand surge. His research led him to one company set to reap huge profits from growing auto industry demand.

It’s a junior exploration and development mineral company with over 100,000 hectares, and it’s located smack-dab in between the two largest palladium deposits in North America.

To the west is North American Palladium’s Lac des Iles Mine, one of the largest palladium mines in North America. Lac des Iles has 3.7 million ounces of palladium resources and is projected to produce 140,000 ounces next year.

To the east is Marathon PGM’s Marathon Mine — containing 2.4 million ounces of palladium reserves plus 3.0 million ounces of palladium resources. It was just bought by Stillwater Mining (NYSW: SWC) for $118 million.

Take a look for yourself:

September 2010 Great Lake Map 600x308

These are two of the most important palladium mines in North America.

Every junior palladium explorer wants land around them.

This junior company has already made the discovery of a palladium deposit on one of its many mining claims of 730,000 ounces of palladium-equivalent resources…

But the company is actively working to upgrade and increase its palladium resource base.

The target: 2.6 million ounces of palladium-equivalent resources.

And it’s worth 12.6 times more than the company’s current market cap.

This means that — once this company becomes resource-heavy and properly valued — share prices could increase 1,163%.

And that’s just at current palladium prices!

The last time palladium was entering a similar bull market, prices rapidly surged from $160 to over $1,100 an ounce — a 588% increase!

Fortunately, palladium prices have pulled back quite a bit, allowing for a buying opportunity. And if we have a similar bull market for palladium, prices could hit $3,438 an ounce!

With palladium prices nearing $3,500 an ounce, the investment gains from this small stock will start to increase exponentially…

I’ve already taken up too much time here. There’s a lot more to this story that I want you to hear.

I haven’t even begun to touch on how palladium prices are about to be forced higher by the global auto industry’s “big switch.”

But you can learn more about the global palladium industry and how the auto industry’s “big switch” will drive prices even higher simply clicking here or copying and pasting the following link into your internet browser’s address bar:

Until next time,

Adam Sharp
Analyst, Wealth Daily

P.S. To keep tabs on the latest Gulf Oil Spill developments, check out this page on our sister site, Energy and Capital. This disaster is a hard one to watch unfold, but the implications for investors are going to be crucial…