Is palladium suitable for investment?

When an investor becomes interested in precious metals investments, the first thing that comes to mind is gold or silver investments. These metals are very popular and have traditionally held a strong place in investors' portfolios. And although Palladium is 30 times rarer than gold, it is often overlooked by investors. But why is this so? Are there higher risks associated with Palladium or is it simply not a suitable addition to an investment portfolio? But first, let's talk about what Palladium actually is.

What is palladium?

Palladium is a rare metal with a greyish-white color that occurs in nature only in small amounts. It is usually found in a mixture with other metals such as platinum, nickel, and copper. It is a noble, durable, malleable, and ductile metal, electrically and thermally moderately conductive.

It is the most reactive of the precious metals and has good catalytic properties. Due to this, it is widely used in the automotive industry in catalytic converters. Other uses of palladium are in medicine (e.g. in the manufacture of dental implants, artificial joints, etc.) and in jewelry.

Key drivers of palladium price growth

The impact of various factors on the price of palladium is shown in the figure below.
 

_{Factors affecting the price of palladium}

Various geopolitical events, changes in technology, and problems with mining, all affect supply and demand, which is crucial for the development of the metal price. In terms of supply, much of palladium production comes from Russia and South Africa. In these countries, there are often problems with mining due to poor infrastructure (for example, in South Africa there are power cuts). The Russian invasion of Ukraine has also contributed to the price increase.

On the other hand, demand has risen sharply in the last few years, mainly due to the use of palladium in catalysts and strict emission requirements. As a result, palladium has long been in excess of demand over supply, which should push up the price of this precious metal. However, there is another risk associated with the shift to electromobility which could subsequently lead to a reduction in demand for palladium.

What is the current price of palladium?

_{Price of palladium on a weekly chart}

The chart shows that there is a downward trend and the current spot price of Palladium is at USD 1 282 per ounce. This is well below the all-time high, which was at USD 3,434 per ounce of Palladium.

There are several factors behind this development. According to a report by Johnson Matthey, total palladium holdings in ETFs have fallen from a peak of nearly 3 million ounces to less than 600,000 ounces at the beginning of 2021.

The shift to electric vehicles is seen as a significant deterrent to palladium investment. Another is the lingering recession fears that still resonate in the market. While the performance of the US economy has not yet sent any visible signals of any harder impact, the inverted yield curve on US bonds is what is reviving the recession fears. That's because this condition has so far always led to some form of recession eventually.
 

Does it make sense to invest in palladium?

With the downward trend, the risk of falling demand in the automotive industry, and extreme volatility making palladium more of a speculative asset, many investors are staying away from palladium. On the other hand, the reason to invest in palladium is its rarity and the fact that it will still be in demand in industries such as jewelry and medicine. It will also be used in the chemical industry.

In general, investors use palladium to diversify their precious metals portfolio by holding a percentage relative to their investments in gold and silver.

How to invest in palladium

1. Palladium coins and ingots

A popular way of holding palladium is through physical possession of palladium coins or bullion, which can be purchased from a precious metals dealer. Popular palladium coins include Canadian Maple Leaf palladium coins and American Eagle palladium coins.

2. Palladium ETFs

With palladium ETFs, one does not invest directly in the precious metal, but rather in a palladium-backed fund. Palladium ETFs allow investors to gain exposure to the precious metal without having to personally own it. An example of such a fund is the Aberdeen Standard Physical Palladium Shares ETF (ticker: PALL).

3. Palladium-linked equities

Another option is to buy shares of companies that are active in the palladium business. This includes shares of miners such as Platinum Group Metals (ticker: PLG).

Conclusion

Current price developments and the potential decline in automotive demand will not convince many investors to hold palladium for the long term. However, it is possible to capitalize on the potential price decline by speculating on CFD commodity instruments, which can also be found in the Purple Trading offer.

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