Gold vs Palladium – Key Differences for Investors

When we think about investing in precious metals, the first choice that jumps to mind for the majority of us is gold. This negates the fact that there are several other precious metals available that can make for an excellent investment depending on our needs. Perhaps the least known of these is palladium.

Even though palladium seems relatively unpopular by comparison with gold, there are several reasons why you may consider investing. Not least of these is the fact that palladium has outperformed many other precious metals in recent years. This is one of a few key points and differences we will take an in-depth look at in this article.

Industrial Demand

Starting with a key positive component in why you should invest in palladium ahead of gold, industrial usage of palladium is much more prevalent than with gold. The auto industry in particular is a huge user of palladium in the catalytic converters of vehicles. This huge demand in good times for the auto industry has a very positive impact on palladium prices.

On the other side, this creates a situation where palladium is exposed to industry demand that can lead to some fluctuation and volatility in ways that gold is not. For that reason, an investment in palladium may be considered a little less conservative than the same investment in gold. Transitioning to a future where EVs dominate the market may also work to reduce the need for catalytic converters and with it a large market for palladium consumption.

There are certainly other industrial uses for palladium such as in dentistry, and good demand in the jewelry sector thanks to the metals shiny appearance and strong, robust nature though the demand for gold here also matches up well.

Gold & Palladium as a Store of Value

As with any other precious metal, both gold and palladium will always function as a store of value. With the high prices that both are presently commanding, this factor is very evident. Be it as a hedge against inflation, times of economic uncertainty, or simply as a longer-term investment, both tend to function very well.

Where other trading markets whether it is the equities market on Wall Street, the forex market, and others tend to have a higher degree of volatility and can be somewhat unpredictable, precious metals markets and investments typically provide a degree of consistency. This has certainly been the case for both palladium and gold in recent years.

Either precious metal then can act as a great way to balance any portfolio when considering risk management. With rising rates and the potential for inflation in 2021 a constant theme, it is no surprise to see both gold and palladium continuing to trade at higher levels.

Rising Price of Palladium

While it seems to fly under the radar more than gold, silver, and even platinum, palladium prices have been increasing at a very fast rate over the last 5 years. This trajectory charts an increase from low points near $500 to more than $2500 at highs where it still trades close to today. Gold has also performed steadily over that period but provides nothing close to the same return as palladium.

Past performance is no indication of future success, but given the factors that led to this return, it may well be possible to see palladium continue its rise. Not least of these is that the metal has a lower supply than gold. This can be two-fold in that it makes the market for palladium more illiquid though it also works to push the price higher.

Presently, palladium continues to trade at higher spot prices than gold. This makes it the most expensive of the commonly traded precious metals while providing an attractive rate of return to traders.

Substitution of Palladium

The high and rising price of palladium can be a double-edged sword in many ways. Though a higher price supports the position of this precious metal as an excellent store of value, it can also prove to be prohibitive in terms of industrial use. The widespread use of palladium in the auto industry relies on affordability since the price directly impacts the cost of production and the finished vehicles.

What has happened increasingly in the past through to the present day is that manufacturers substitute palladium with other similar metals that can also be used for the same industrial purpose but at cheaper prices. In this case for catalytic converters, platinum is often the substitute of choice.

With this action subsequently reducing demand and prices for palladium it then becomes very important that the price retains a good balance relative to its use in industry. A higher palladium price could lead to an uptick in the use of platinum for the same purpose however. For more on this, you can check out our article on everything you need to know about investing in platinum. The nature of gold meanwhile at its relatively rare demand as a vital industry metal protects it against such factors.

International Stability Concerns

Much like platinum, geopolitics can play a huge role in palladium prices. Again this is due to the fact that the bulk of the metal comes from mines in just two countries. South Africa and Russia control the majority of the palladium industry. That exposes the market to movement based on the situations both in those countries, and their international relationships.

This means that any supply interruption that can happen for a variety of reasons whether it is related to power supply issues or miner strikes as is often the case in South Africa, could trigger a knock-on effect on the price.

While such events may push prices for palladium higher in the short term, a restricted supply and higher prices can have a detrimental impact on the industrial use side of palladium and so can hamper demand in this area. With gold much more accessible to mining, supply constraints are not among the most commonly faced issues.

Where to Buy Gold or Palladium

There are multiple ways to buy Gold. We recommend the following vendors:

1. Bitpanda (Europe only.)
2. Gold Broker
3. Bullion Vault

Buying palladium can be more difficult due to the challenge of finding trustworthy palladium suppliers. Due to this we only recommend Bitpanda.