Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Palladium Metal Investing Primer

Commodities / Palladium Jul 30, 2011 - 11:56 AM GMT

By: Andy_Sutton


Best Financial Markets Analysis ArticleOften lost in the shuffle and the talk about gold and silver as the primary precious metals is another metal, which has uses that rival that of silver, is brilliant in appearance and makes a beautiful coin. Its value has quadrupled since 2003 after seeing an all-time high in 2001, and potentially the best aspect yet is that the supply and demand fundamentals have never been better. Guess it yet? I’m talking about palladium. Over the next several pages, we’ll take a look at the many uses for palladium, who the big producers and consumers are, prices, and most importantly, the future outlook. The purpose of this article is not to form specific recommendations, but rather to raise awareness of another of the semi-precious metals and to act as a primer for familiarizing people on its fundamentals.

By way of introduction, let me say first that palladium does not have a rich heritage as a monetary metal like gold and silver. Rather, it is akin to platinum in that you can buy coins (Maple Leafs and bars) rather easily, but they will not be as recognizable by and large as their gold and silver counterparts. The metal is more of an industrial metal, which one might immediately think is bad because by definition, it is susceptible to swings in economic output. This would be true, however, as is the case with energy and other products, we must keep in mind the interlocking nature of the global economy and that we need to be focused on aggregate demand as in global demand, not aggregate demand as in sub-regional or regional demand. Palladium is also not an effective inflation hedge. Looking at historical prices through 2006, you’ll quickly notice that the peak was in 2001, hardly the pinnacle of dollar destruction. However, over the past several years, palladium, like most other commodities, has trended upwards as the dollar has come under increased attack.

Palladium’s Uses

Probably the most well known use of palladium is in autocatalysts or catalytic converters. These can be made of platinum as well, however, palladium has several advantages over its top-shelf counterpart. It is more resistant to oxidation, meaning it will last longer in catalytic applications, is softer and more ductile, and is generally cheaper than platinum. Auto-catalysts are by far the biggest use for palladium at the moment and such catalysts are even present in hybrid cars as well, meaning demand is not likely to be adversely affected even as many car owners switch to hybrids in the coming years. One possible risk to palladium demand would be a revolutionary breakthrough on the electric/solar/LNG side, which would make it feasible for a large amount of car owners to affordably switch to the new technology. There are certainly examples of these, but they are by no means a threat at this point and I wouldn’t foresee such developments becoming an issue over the next several years at a minimum. These types of major changes are generally slow to occur. As of 2009, roughly 45% of palladium was used in autocatalysts. This number was down from over 53% in 2003, which bodes well for the diversity of uses for the metal.

A second popular use for palladium is in electronics. Its metallic characteristics make it a very suitable substitute for gold in plating of sensitive electronic components. The fact that it costs roughly half that of gold makes is a shining example of the substitution effect in practice. As of 2009, around 15% of palladium

consumed went into electronic components. Jewelry accounted for roughly 14% of palladium used in 2009. Investment in the metal accounted for 10% of 2009 demand. This is very important because in the earlier part of the decade, investment in palladium was trivial at best despite the fact that the metal had very recently been at a record high. Interest has been multiplying significantly, however, most metals investors still have yet to make their first purchases of palladium.

Rounding out the balance of Pd’s uses are dentistry and chemical refining, where it is used to develop raw materials for use in synthetic rubber, polyester, and nylon. It is also utilized in oil refining where it is present in several types of hydrocracking applications, photography, water treatment, hydrogen purification, and medicine. Like silver, there are many diverse uses for palladium and this fact alone bodes well in that it serves to insulate prices somewhat from the stagnating USEconomy.

Palladium Supply and Demand

As of 2003, the situation with regards to palladium was eerily similar to that of the rare earth metals in that much of the globe’s resource base was concentrated into a very small oligopoly of producers. In that year, nearly 80% of global palladium production came either from the Russian Federation or South Africa. By 2010, Russia was largely tapped out of palladium. Its purported massive stockpiles were diminished to nothing and its three biggest mining projects were all in advanced stages of decline. Russia has been supplementing mine production from its Norilsk mining company with sales from Gokhran, the state repository (a stockpile), and the Russian Central Bank – obviously another stockpile. In early 2010 Anton Berlin, a director of Norilsk, stated that there would likely be no sales from the Russian repositories in 2011.

While the exact content of Russia’s stockpiles is not for public consumption, Mr. Berlin did confirm that sales out of the stockpiles have been declining since early in the decade. At this point, the largest palladium deposit on earth exists in South Africa in the form of the Bushveld Complex. Currently, the only other producing nation that has significant upside potential in terms of production is Zimbabwe. However, it is a locale that is loaded with political risk among other things at this stage of the game. There are currently several projects going on in North America, the most promising of which exists at Thunder Bay, which could end up producing nearly 40 million ounces of palladium. It must also be understood that the projects in the Thunder Bay area are for the most part in their infancy and real production is likely several years down the road.

The market will need every ounce from these projects because light vehicle production is set to increase through 2016. If you’re worried about a worsening of the US recession killing off demand, consider the fact that China is outpacing America in terms of putting new cars on the road. There are several other jurisdictions like India and Brazil where more stable economic environments will lead to growth in middle classes that will take to the road as well. Remember; consider aggregate demand, not just regional demand. Other factors that will provide upward pressure on palladium usage are increases in investment demand, medical uses, and, in particular, the petroleum industry as shrinking supplies of crude oil demand even more efficient refining techniques. Palladium has also been a part of many of the early work in fuel cell technology and while it is impossible to gauge what the impact will be at this stage, fuel cells will clearly be in focus as the world comes to grips with peak oil and seeks suitable alternatives.

Summary and Outlook

Palladium has several big advantages over many of the other metals in the commodity space. First, it is practical in terms of holding a physical position should one desire. Compare it to copper, for example, where a $1000 position requires you to hold over 200 pounds of metal. Or  consider oil where it is not practical for the average investor to hold a physical position at all. As I outlined above, supply and demand dynamics favor higher prices in the future, and while it was not the focus of this article, there are some very significant opportunities in the palladium mining space for those who wish to take advantage in that manner. The obvious risks to palladium are the same as the other industrial metals. Another severe global recession would likely dampen demand enough to keep prices in check. Such a recession/crisis, if it were to impact the capital markets as we saw in 2008, would likely impair mining firms (especially exploration/development types) from getting the necessary capital to fund their continuing operations. Innovation, especially in the automobile space, represents a risk to the current demand profile for palladium, but innovation also presents more potential uses for the metal as well.

The bottom line on palladium is that while it is certainly not the sole answer to protection against dollar destruction, there are some very compelling aspects to the market that make it worthy of serious consideration. It is yet another tool that we can use to operate in a world that is becoming increasingly wary of paper monetary instruments and will likely benefit as the world continues the quiet, but relentless push to ‘get real’ by acquiring tangible assets.

If you haven’t taken an opportunity to download our free report entitled ‘If You Have Paper Assets… There are Three Things You Must Consider’, think about doing so now. As debt contagion swirls in Europe and now on our shores, it is more important than ever to take a protective stance towards the entirety of your assets. Simply Click Here to go to the download page. No obligations, no hassles, just common sense investing wisdom.

By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit

Andy Sutton Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules