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Investing in precious metals, the big names that are first to catch the eye, and the first that many investors will consider, are both gold and silver. This is understandable given the longstanding reputation and high-profile nature of both. The fact remains though that there are other choices available when you are considering a precious metals investment.
Platinum and palladium have both traded extremely well of late with the latter in particular on a large run recently due to some of the differences we will highlight here. While both can appeal to similar traders there are still some important differences to note between both of these “other” precious metals that you should consider before buying.
Palladium Price Volatility
Despite gold being the first thought of many investing in the sector, palladium is actually the rarest of all the major precious metals, and by quite the distance in terms of mining volume year on year. You would expect this to mean that palladium has always been priced higher on the market than platinum.
Surprisingly though, until recently, platinum regularly fetched a higher market price than palladium and has always been known to command a higher price. Due to a number of the factors we will look at in more detail though, the roles of these two precious metals have reversed. Palladium now easily tops the list of most expensive precious metals above gold as well as platinum.
While this is certainly a positive if you are already holding platinum, it is worth keeping in mind that the price of this metal has long been considered more volatile than platinum as is illustrated by the price movement in the past year along with a more detailed look at the charting history. If you are searching for slightly better long-term price stability then, platinum could be the best option.
Alternating Use in Industry
Both platinum and palladium are heavily used in industry. The demand for industrial application from both far exceed that of gold or silver. This is thanks in a large part to the demand from the auto industry. It is also a factor that both are quite heavily reliant upon although they both do have other industrial uses.
Due to the similarity of both, they are almost interchangeable when it comes to their main purpose within vehicles and wider industry. They are the in-demand metals when it comes to catalytic converters in vehicles and so both can typically see price increases when auto demand from China and the US particularly is high. Interestingly, where palladium had typically been used as the cheaper substitute to platinum here when prices were high, their roles have now reversed.
With palladium prices now close to all-time highs and with supply issues at play, many manufacturers have rotated their usage to platinum. However, given the fact that palladium has a much higher density and is considered a more reliable choice, it is plausible to assume this will again be the favored choice if prices were to come down.
Mining & Supply Influence
As mentioned, both of these precious metals are mined in considerably lower quantities than their better-known counterparts. This rarity can have an upward influence on the price, especially when combined with the relative difficulty in mining both metals and the various influences that can impact the supply chain along the way.
Such supply issues can have a big impact on pricing as can be seen currently in the palladium market and have certainly been evident in large price movements in the past with platinum. Mine closures in Russia recently resulted in a reduction of expected output levels for both platinum and palladium. The resulting market trading pushed palladium more than 5% higher.
With the vast majority of mining for both these metals taking place in Russia and South Africa, international relations can also play a huge role. Any disruption to supply for whatever reason whether it is the more frequent power outages in South Africa, flooding, or international sanctions almost always result in a price spike for both. This impact will also be felt in the auto industry though with a move higher also likely from the most freely available of the two.
Both as an Inflation Hedge
Of course, the most famous precious metal as a store of value and hedge against inflation concerns is gold. It should not be overlooked though that both platinum and palladium tend to perform well in both of these categories. This is due not least to their face value, but also to the fact that they are considered to be relatively rarer than both silver and gold.
Particularly in periods where the gold price is also high, many individual investors and funds alike tend to turn to palladium in particular. This is often due to the fact it presents value at a reasonable price compared with availability and also showcases more industrial uses. There would not seem to be any coincidence then that a spike in palladium prices comes at the same time as inflation concerns persisting in the economy along with a bounce back from COVID-19.
US Dollar Strength Impact on Both
Closely linked to some of the other factors, the strength of the US Dollar forex market can also have a direct impact on prices for both palladium and platinum alike. The reasoning behind this can be noted from the fact both metals are typically paid for in US Dollars from their overseas suppliers.
In that case, a stronger Dollar typically acts as a mining and production incentive, while a weakened Dollar can have the opposite impact relative to other factors. Also rolled in here can be several of the other key price drivers. Economic uncertainty and inflationary pressures both typically cause a retreat to the Dollar and a strengthening of the currency. These factors contribute further to the position of both precious metals to be a good place to invest in more challenging economic times.
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.