A Palladium Investment Can Be Better than Gold!

Making a "palladium investment" sounds exotic. To many, it seems like some far out commodity play, or an investment only for speculators and hedge funds.

You may be looking to create a diversified set of investments in precious metals. Or you might be thinking of trading palladium because it is more volatile gold or silver. A palladium investment can help you achieve both goals.

But it is no different than investing in gold, silver, or platinum; you make the it safe or risky.

A safe palladium investment is created the same way as any other type of "safe" investment"; your position size.

What is Palladium?

Picture of Raw Palladium


When it comes to precious metals, palladium is the forgotten son.

It is the rarest member of the "platinum group metals" (PGM), including platinum, palladium, iridium, rhodium, ruthenium and osmium.

The metal, named after the asteroid "Pallas", was recognized as an element in the early 1800's.

These days, palladium can be found in many places, such as dentistry, watchmaking, surgical instruments, and electronics. "White gold" is created by adding palladium to gold.

Why buy Palladium?

As with the other precious metals, palladium investments are considered stores of value. But palladium's large price fluctuations mean it is highly volatile, and the least attractive when it comes to "storing value".

This is not to say that you cannot (or should not) invest in palladium. Volatility is a friend of the trader AND the investor; after all, if investments didn't change price, you wouldn't make any money!

Take a look at the graph below, which showcases 2010 investment returns.

Tornado chart of 2010 Investment Performance

2010 Price Performance
[Source: www.finviz.com]

Palladium returned 95.6% in 2010...


And chances are you already own some palladium. According to the IPGMA, 25% of all goods manufactured today either contain palladium, or it was a key part of the manufacturing process.

Factors that affect Palladium Investment Prices

Palladium prices are very volatile, much like a micro-cap stock or other investment instrument with low trading volume.

Similar to silver, Palladium has MANY industrial uses. According to the International Platinum Group Metals Association, roughly 50% of the total demand for palladium comes from the automotive industry.

As the electronic industry continues the drive towards smaller and more mobile electronic devices, demand for palladium will continue to rise. On the supply side, 86% of palladium resources are controlled by two counties: Russia at roughly 50%, followed by South Africa with 36%.

With majority of the global supply for the rarest PGM controlled by two nations, what stops them from limiting production to decrease supply and drive up the price?

The answer comes from the physical properties of platinum group metals - they are extremely durable and aren't used up quickly.

    "When recycled, over 96% of PGMs are recovered through highly-efficient recycling techniques. Their recyclability means that they have a uniquely long lifecycle, allowing them to contribute significantly to the protection of the environment by reducing any negative impact which is normally associated with metal waste disposal."

    The International Platinum Group Metals Association

The volatility I mentioned earlier is not without a cost. If you choose to buy real assets (such as bullion coins and bars), the number of times people buy and sell palladium is much lower than that of gold or silver. This means that you will probably encounter a wide spread between buying and selling prices. So it pays to shop around!

Palladium Investment Choices

In the commodity markets, the palladium bullion spot price can be seen via the ticker symbol (called the "ISO currency code") XPD. Those of you using US dollars may need to enter the code "XPDUSD".

Real Assets

  • Bullion - Coins and Bars
  • Jewelry

Financial Assets

  • ETFs (PALL - ETFS Physical Palladium Shares)
  • Stocks (PAL - North American Palladium)

The investments I mention above are called "pure-play", meaning that their pricing is based palladium's spot price and nothing else. You can also find ETFs and stocks based on the prices of all PGMs, or even all precious metals.

Where to buy Palladium Investments

As mentioned earlier, chances are you already own some if you own a car (its in your catalytic converter). But I doubt you're here looking in local junk yard for investment opportunities.

Bullion can be purchased from rare coin dealers, trade shows, online auction houses or brokers. There are several online options, but you MUST do your research to ensure that these dealers are reputable. Of course, there is always your local jewelry store.

Financial assets, such as ETFs and mining stocks, can be purchased in your normal brokerage account, as well as retirement accounts. But be sure to check your financial goals, investing strategy, and investing techniques to make sure that a palladium investment "fits" with your investing process.