In notes to our clients we've talked a couple of times about gold, and touched on silver and platinum which are all members of the precious metals family. The potential for gains in all three of the metals has been sizeable in the last few months. There has been some notable pullbacks and profit-taking of late, particularly in gold stocks, however there is a member of the family we have yet to discuss in any depth. Palladium.
Traditionally, gold, silver and platinum have received all the attention. But like a spurned sibling that everyone ignored, the palladium spot price has broken free and there’s been no looking back just yet.
Palladium Price $US/ounce
Much lesser known than the other three major precious metals, palladium has in a very short period of time become the most expensive, overtaking gold. Similar to platinum, not much is known about the metal – what it is used for, how it is mined, and more importantly, how or why has it become so darn expensive?
The majority of palladium ends up in car exhaust systems where it aids in converting toxic pollutants into less-harmful CO2 and water vapour. To a lesser extent, it is also used in electronics, dentistry and jewellery. The metal is mined primarily in Russia and South Africa, and mostly extracted as a secondary product from mines focused on other metals such as platinum or nickel. Who would have thought a by-product could have surged to a value of over US$1,800/oz!
Simply put, supply hasn’t responded to growing demand. Usage is increasing as governments, especially China, tighten regulations to crack down on pollution from vehicles, forcing automakers to increase the amount of precious metal they use. Globally, it also looks like we've been buying fewer diesel cars (which mostly use platinum) and instead sticking with petrol powered vehicles (which use palladium) following news that some diesel car makers were cutting corners on carbon emissions tests.
Furthermore, population growth has not eased, and the electric car take-up has been slower than many predicted, perhaps due to pricing and convenience. We are still relying on petrol power (particularly in the emerging markets).
Source: Metals Focus
Palladium’s status as a by-product to platinum or nickel mining means output tends to lag price gains. In fact, the amount of palladium produced is projected to fall short of demand for an eighth straight year in 2019. That’s helped drive price to all-time high. While some obscure metals are still more valuable, such as rhodium, palladium has ballooned and has outpaced gold for most of this year.
Gaining any direct exposure to an investment in palladium is a difficult proposition and would be most easily achieved via ETFs e.g. the Aberdeen Standard Physical Palladium Shares ETF (PALL). Do your own research though as always – bubbles often, if not always, burst.