Precious metals investors, and those who are only considering investing in precious metals, have traditionally focused on gold and silver. Gold and silver are more widely known and have been the backbone of a precious metals portfolio for ages. For many, palladium is something of an unknown quantity, a metal they haven’t thought about since high school science class.
However, palladium is an investment that is not to be overlooked. As Kiplinger reported in April, the palladium price could go as high as $525 an ounce in the coming months, partly due to a shortage of supply in South Africa, which is the largest producer of the metal.
There are several things that affect today’s palladium price, but in general, a rise in value is tied to the demand of the metal for industrial purposes. Palladium has a vast range of applications in. Almost half of the demand for palladium is for the manufacture of catalytic converters. Therefore, a rise in automotive sales would be an excellent indicator that the palladium price is about to go up as well.
Bear in mind that auto sales in any country create higher demand, so keep an eye on the global markets. Palladium is also used in a number of electronic components, chemical processes and even dentistry, so there are a wide range of markets that will affect the palladium price.
Another very important factor affecting palladium price is supply. Ore deposits of palladium and platinum are the most rare and becoming increasingly more so. More than half of the world’s supply is from Russia and South Africa accounts for the majority of the rest. In addition to dwindling deposits, both countries commonly suffer from production-related issues. Historically, Russia also has a tendency to horde palladium for its own stores. This contributed to the automotive-industry panic of 2001 that saw the palladium price skyrocket to dizzying highs.
While the diversity and number of markets affecting the palladium price help make it a good investment, it’s important to remember that they also make the price of palladium more volatile than silver or gold. Investors who are uncomfortable with frequent swings will want to consider that when making a decision.
Another distinction between palladium and silver or gold is that palladium tends to follow the economy, while silver and gold go the opposite direction. Silver and gold are considered a hedge against inflation and a weak dollar. Palladium, for the reasons already explained, performs well in a healthier economy. That said, investors in precious metals will do well to have some of all of these metals in their portfolio, allowing their overall portfolio value to weather most economical conditions.