Investing In Palladium – Is This Precious Metal A Good Investment?
The palladium market has seen recent growth, and its unique properties could be a great investment for the future. You should research to decide if palladium is the right investment, but this article will serve as an investing guide to get you started.
What Is Palladium?
Palladium is a white metal that is similar to platinum. An extremely rare metal, it has a high luster, making it a popular choice for jewelry and industrial demand. Palladium is most common in the automotive industry. It is a key component in catalytic converters, which help reduce harmful emissions. Palladium also finds application in electronics and dentistry. Its supply is limited, so it is very valuable. Palladium’s price has been rising in recent years. Prices have nearly doubled since 2016. That could make palladium a good investment for the future. The unique chemical properties of this white gold make it a key industrial material. These include:
- Highly corrosion-resistant
- Low toxicity
- The melting point of 1,560 degrees
- Low density
- Does not react with oxygen
Why Is Palladium Suddenly So Valuable?
A palladium alloy supply shortage has led the price of the rare metal per ounce to skyrocket since 2012. Palladium’s chemical properties make it ideal for controlling the pollution produced by motor vehicles, causing manufacturers to try to cut their carbon footprints. During the pandemic, mining operations ceased, adding more strain to palladium’s supply.
In 2021, palladium price forecasts soared higher than gold due to a market imbalance of approximately -400,000 metric pounds due to its supply shortfalling. High demand and low supply make palladium scarce, far scarcer than gold, which has been key in pushing palladium past gold in the past few years.
What Are Reasons To Invest in Palladium?
These are the top reasons to invest in palladium in 2021 and our general palladium investment outlook in the near-to-medium term.
Environment Use Cases
All signs point to palladium’s long-term value due to its environmentally friendly qualities. Only a trace amount of palladium seeps into the soil, typically in the range of 0.4 parts per million (ppm), which is safe for organic growth. It is considerably lower than other platinum-group metals. Plus, palladium is a hot commodity in producing environmentally sound car exhausts. Unlike diesel engines, gasoline engines use palladium to limit the amount of harmful carbon dioxide (CO2) emitted into the air. With more automakers seeking to reduce CO2 emissions, palladium will be a key ingredient in meeting those targets.
Future Geopolitical Uncertainty
The entire world’s palladium supply comes from South Africa and Russia. The two countries rank relatively low on the economic freedom list, ranking 99th and 92nd worldwide. Both states have concerns regarding the rule of law, corruption, and market protectionism. In a hypothetical future, South Africa and Russia could be sanctioned or cut off from the rest of the world’s global trade network. Consequently, the palladium supply shortage will only worsen, making investment-grade palladium nearly impossible to locate. So, investing in palladium now with ample opportunities and liberalized supply chains makes sense.
A Dipping U.S. Dollar
With a weaker U.S. dollar, palladium becomes a more attractive investment opportunity. With palladium and other precious metals like gold and silver traded on international markets in U.S. dollars, a weakening or declining dollar would reduce the incentive for palladium miners and producers to sell their products.
There is already a drop in the value of the U.S. dollar due to inflation. Consumer price index data for May 2021 showed 13-year highs for U.S. inflation. The recent surge in inflation may be merely a temporary effect of the worldwide recovery, but it’s impossible to accurately predict the dollar’s strength in two or three years. Due to a decline in the dollar, suppliers will stop mining palladium, increasing the rare metal’s price. Investing in palladium today can help you mitigate the effects of a declining dollar and the threat of looming inflation.
Retirement Portfolio Diversification
Global investors can benefit greatly from palladium investments. Precious metals investing, such as platinum and palladium, can protect against sudden and erratic changes in the equity market. A palladium investment is one of the best choices for reducing stock market crashes.
Investors can add palladium to tax-advantaged retirement accounts, including self-directed 401(k)s. While investing in palladium ETFs is possible, only palladium bullion offers deep diversification benefits that minimize risk. It is because ETFs are much more liquid asset types than palladium bullion and are prone to much more volatile and responsive price movements.
Will Palladium Price Keep Rising?
The first major shift in the palladium market happened in late February 2022, with flight bans affecting much of Europe. It cut into supply and, in turn, prices, but the rare metal is already 24% higher year to date. Analysts expect this situation to last until at least 2022. During that time, new products will be necessary to meet high demand. The next big step is securing supply through discoveries.
Automotive sector demand drives palladium prices. Catalytic converters are a critical part of the automotive emissions control system, and automakers have been ramping up production of these devices due to future global regulations. The investment demand for this precious metal is likely to continue to increase. However, as palladium demand rises, supply may remain below pre-pandemic levels.
What Drives Palladium Prices?
The price of palladium has risen more than the gold price. That has shone a light on both like never before. So, what factors have driven palladium prices to put them at higher levels than gold? Among the most important are:
Automotive Demand: This is the number one influence on palladium prices worldwide. Palladium finds its biggest use in the auto industry, accounting for around three-quarters of global demand. It is because palladium is a key component in the manufacturing of catalytic converters.
Geopolitical Concerns: This can play out on several fronts for palladium and is something you should investigate before investing. South Africa and Russia supply the world with most of its palladium- for about 80% of the total supply worldwide. Therefore, interruptions to this process or supply, whether in the form of sanctions as Russia sometimes experiences or power supply deficits, may cause price fluctuations.
Substitution: Substituting palladium for other physical metals in the auto industry is scrutinized. It is largely due to the high price of palladium and the fact that several substitutes, including platinum, can be used. Because platinum is not a direct substitute for palladium, the auto sector remains largely dependent on palladium.
U.S. Dollar Strength: The U.S. Dollar forex market is going through a tough time, and this weakening dollar can impact palladium prices or other precious metals. Palladium usually comes from suppliers in U.S. Dollars. Any downward movement in the dollar can act as a disincentive to top suppliers. It can reduce the supply of precious metals, leading to an upward price movement.
How Do I Invest In Palladium?
In the long run, palladium will continue to rise in price as demand increases. The price of this rare metal is a good hedge against the weakening dollar and looming inflation. As a result, the average retirement investor has much to gain from a palladium investment. Because the physical metal does not correlate with the stock market, it can insulate your portfolio from price volatility.
Exchange-Traded Funds (ETFs)
An exchange-traded fund (ETF) tracking palladium trades like a stock, but it tracks the precious metal like an index fund.
Invest in palladium through physical assets such as palladium bullion. Investing in palladium bullion bars or palladium coins can increase the value of a portfolio. Investors looking to invest in metals and cash with small amounts of money may find this approach suitable. Palladium bars and wafers are other options that are not as readily available.
As a final option, investors can invest in companies with palladium-related products. It is possible to invest in palladium this way, but it can be tricky since most of the palladium on the market comes from nations that produce primary platinum. As a result, it isn’t easy to gain exposure purely to palladium.
What Are Other Precious Metals Available In The Market?
Platinum, silver, gold, rhodium, iridium, ruthenium, rhodium, osmium, and rhenium make up the
- Rhodium occupies the top spot among precious metals due to its extreme rarity. It has a very high ability to tolerate corrosive objects without getting affected and has a melting point that is quite high. Most of the world’s supplies come from Canada, Russia, and South Africa.
- Platinum is known for being non-corrosive and dense. Platinum is known for its malleable properties. Hydrogen is no match for this metal, as it can easily withstand large amounts.
- Gold remains the most popular among metals regarding investment options because it is malleable, durable, and desirable. Panning and mining separate it from surrounding minerals and rocks. Australia, China, the United States, and South Africa are the largest producers.
- Ruthenium is added to palladium and platinum alloys to increase resistance and hardness. In electronics, it is quite popular and ideal for effectively plating electric contacts.
- Iridium is a white-like metal with a very high melting point and is considered very dense. The ore of platinum contains iridium, a byproduct of nickel mining.
- Osmium is silver-blue. This brittle, hard metal has a very high melting point. North America, South America, and parts of Russia are the primary producers of osmium. It provides for the hardening of platinum for filaments and electrical contacts.
- Rhenium has the third-highest melting point, among the densest metals. It is a molybdenum byproduct, which is a copper mining byproduct, essentially.
- Silver is the most thermally and electrically conductive and has the lowest resistance for contact among the other precious metals. Chile, Mexico, China, and Peru are the biggest producers of silver.
- Indium is produced from processing zinc-ore and is considered a rare metal. By its very nature, it is white and is extremely malleable and shiny.
All physical metals have the potential to be a good investment. Having a tangible asset offers you the ultimate control over your wealth. As with gold, palladium will often act as a hedge, with prices moving inversely to the dollar. Demand will turn to physical assets like palladium over paper-backed fiat currencies when economic turmoil increases. If you’re thinking about metals investing, be sure to do your research first. Any investment involves risks, and palladium is no different. But if you think palladium could be a good addition to your portfolio, it could be a wise choice for the long term.
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