Investing in Palladium – Everything You Need to Know
Table Of Contents
Why Invest in Palladium?
Investing in precious metals you would be forgiven for putting a very heavy focus on the popular names in the sector. Trading in gold and silver obviously attracts much more attention in this area, mainly due to the general level of awareness that most people have around these very common market choices. There are other precious metals that are definitely worth investing in though. One of these which is often forgotten about by retail traders, is palladium. Despite the fact this precious metal has grown strongly in recent years, and has displayed gains of more than 1,000% since 2008, it is often left aside by investors focused on the higher volume gold and silver markets.
Here we will show you what the palladium market is all about, how you can get into trading this precious metal, and why it may be a great addition to your portfolio.
The Basics – What Drives Palladium Prices?
At the present time, palladium is trading higher than gold, with both at record high points. This has shone a light on both like never before. So, what are the main factors which have driven the prices of palladium to put them at higher levels even than gold? Here are a few major ones to consider:
Auto Industry Demand – This is by far the number one influence on the prices of palladium around the world. The auto industry accounts for around three quarters of the global demand for palladium. This is due to the fact that palladium is a key component in the manufacturing of catalytic converters. This, and particularly the demand for vehicles in large markets like the US and China have a huge bearing on the price of palladium.
Geopolitical Concerns – This factor can be active on a number of fronts for palladium and is something you should investigate prior to investing. Much of the world’s palladium supply comes from Russia, and South Africa. This accounts for about 80% of the total supply worldwide. With that said, any interruptions to this supply or process, be it in the form of sanctions as Russia sometimes deals with, or power supply problems, can cause a fluctuation in prices.
Substitution – Substituting palladium for other metals within the auto industry is something which is coming under and increasing amount of scrutiny. This is in large due to the high price of palladium, and also the fact that a number of substitutes, including platinum can be used. With that in mind though, platinum is not a direct substitute that can be easily used, so car makers are still largely reliant on palladium.
US Dollar Strength – The US Dollar forex market is going through a tough time currently. This weakening dollar can certainly have an impact on palladium prices as it does on other precious metals, though the reasoning behind it may be different. Palladium is typically purchased from suppliers in US Dollars. Any downward movement in the Dollar has potential to act as a disincentive top suppliers. This can reduce the supply of the precious metal which in turn can lead to an upward price movement.
Ways to Invest in Palladium
Now that you know several of the key drivers behind the price of palladium, it puts you in a good position to get involved in buying and trading the market. There are several ways in which you can do this much trading gold or silver markets. The main points which will vary here are the liquidity, and how closely the investment is tied to the palladium price.
The most direct way to get involved in trading palladium is to purchase palladium bullion directly from a reputed mint or other trustworthy supply source. This physical purchase of the metal typically takes the form of coins, collectable coins, or bars of the metal which can be purchased at different weights. Naturally, this is absolutely tied to the palladium market prices, though you should be mindful that a small premium is generally added by the seller, and this can be a substantially more difficult palladium investment to resell quickly if the price changes.
Palladium stocks are another popular way to get involved in trading the market. This means buying stocks in palladium related companies through your broker. They are typically very closely connected to the demand and price for palladium, though you also have to be careful to understand the key metrics of the individual company performance too. If you are looking for an even higher volume market, you may choose to trade palladium options or futures contracts. These can be higher risk, but are certainly the most liquid in terms of your ability to quickly trade palladium.
Finally, if you are seeking a very well-balanced way to invest in palladium, ETFs may be a good choice for you. There are essentially baskets of stocks which you can invest in at one collective price. Investing in a thematic ETF related to palladium will give you good exposure to many of the main players in the sector, and should also hedge your risk to a certain extent if the prices do fall. These ETFs can often pay a healthy dividend too.
Who Should Invest in Palladium?
Although palladium is now at a higher price point than gold, it is still very much an investment that any type of trader can make. Like other precious metal investments, it is something you can use to add great diversity to your portfolio. It is also becoming very accessible to all retail traders thanks to being on offer from many of the top online brokers.
Your investment in palladium really depends on your risk profile. This will determine which method of palladium investment may be most suitable for you. If you are willing to take more risk and can withstand a degree of volatility, you may consider options, or futures, while a more conservative approach would be an investment in ETFs or certain index funds. With the growth in demand and price though, it is clear that more and more traders are becoming aware of the potential within trading palladium as much as other precious metals.
Where to Buy Palladium
Considering that Palladium is a premium precious metal asset it can be surprisingly tricky to find a trustworthy supplier. We currently recommend European based Bitpanda (United States Prohibited).
Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.