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You’re probably aware that precious metals like gold, silver, and platinum can be smart investments to diversify your portfolio, provide a hedge against inflation, and maintain a reliable store of value.
One precious metal you might not know a lot about (yet) is palladium. In this article, we’ll outline the basics of palladium and provide some guidelines on how to invest.
What Is Palladium?
Palladium is a precious metal that is part of the platinum group. The platinum group includes the following metals, all of which have similar properties:
Discovered in 1802 by English chemist and physicist William Hyde Wollaston, palladium is a relatively new discovery that has important implications for its use as an investment vehicle. The origin of the precious metal’s name comes from the asteroid Pallas, which was subsequently named after the Greek goddess Athena (aka Pallas Athena).
The appearance of palladium is akin to a silvery-white metal. It is non-corrosive and does not tarnish. Because of these properties, palladium is a popular material in industrial applications, electronics, dental materials, and jewelry.
Much of the current demand for palladium is a result of its use in catalytic converters in the automobile industry. With global demand for automobiles up 8.9% from the previous year, palladium is expected to be highly sought after for at least the next couple of years.
Palladium is also becoming highly collectible, and demand is increasing as more investors add it to their portfolios. Combined with its relative rarity, the overall outlook for palladium investment prospects is favorable. In fact, it is 15 times rarer than platinum. Further, palladium is found only in limited parts of the world, namely North America, Russia, and South Africa.
Why Invest in Palladium?
Like most precious metals, there are several compelling reasons to invest in palladium:
- Hedge against inflation: Inflation has always been a risk, and since 2020, inflation figures have been on the rise. Precious metals, including palladium, are often an effective hedge against inflation because they will maintain their value despite fiat currency depreciation and maintain a store of value.
- Take advantage of limited supply levels: Unlike cash, which can be printed indefinitely, precious metals have a finite supply. Resources with finite supply that remain in demand will typically have an upward price trend.
- Diversify your portfolio: It can be dangerous to keep all your financial eggs in a single basket. Adding a precious metal like palladium to your portfolio can spread out and balance your risk.
- Benefit from capital appreciation: While there’s never a guarantee that the price of an investment will rise, macroeconomic indicators currently point to a favorable price direction for palladium. Given that palladium is down significantly from its 2022 all-time high, this could be a good time to invest in the precious metal.
Why Is Palladium So Valuable?
The prices of commodities like precious metals are strongly influenced by supply and demand. The combination of industrial uses with the scarcity of the metal creates a sweet spot where there is a lot of demand with limited supply.
One of the most common uses for palladium is in the automotive industry, specifically for catalytic converters. This mechanical part converts the harmful pollutants in vehicle exhaust, such as carbon monoxide, nitrogen oxides, and unburned hydrocarbons, into less harmful substances.
As global pressures for cleaning up the environment mount, the demand for palladium for use in catalytic converters is expected to rise, though a palladium market analysis suggests that demand could drop as electric vehicles become more prevalent.
In addition to limited sources of palladium, there are also supply chain issues. For example, Russia is a major source of palladium, but Russia has challenges with infrastructure, and the country’s invasion of Ukraine also disrupted extraction.
As awareness of palladium grows, it has become increasingly popular in jewelry and among investors looking for reliable stores of value and portfolio diversification with palladium.
What Is the Current Price of Palladium?
The price of palladium fluctuates significantly, and it has roughly doubled over the past decade. As of December 2023, the trading price was just over $1,200 per ounce, which is significantly less than gold and slightly higher than platinum.
Palladium Price Movements Over the Years
This precious metal has fluctuated drastically in price during the last decade. Palladium hit a high of $3,3850 per ounce in March of 2022 as Russia’s invasion of Ukraine caused fear that the supply would become disrupted. Compare this to 2016, when palladium was trading at around $500 per ounce, and you can see that there are opportunities to trade on this price volatility, especially if you analyze palladium price trends.
Ways To Invest in Palladium
There are several ways to invest in palladium, from physical holdings to paper assets. The list below includes the most common ways investors can acquire this asset:
- Physical palladium: Holding physical palladium in the form of coins, bars, or rounds can give you the security of having a tangible asset that’s also liquid. Physical palladium can also be valuable to collectors.
- Palladium Exchange-Traded Funds (ETFs): For investors who prefer not to hold physical assets, exchange-traded funds can be an excellent alternative. ETFs work by tracking the performance of a specific commodity, like palladium, and investors can buy and sell ETFs just like they do stocks.
- Mining stocks and mutual funds: An indirect way to invest in palladium is through stocks and mutual funds of companies involved in the palladium value chain. This form of investment provides another form of diversification because, instead of relying solely on the price of palladium, positive returns can also be realized through companies that profit based on palladium mining operations.
- IRAs: Precious metals IRAs are a way to invest in palladium while realizing certain tax advantages.
Palladium Compared to Other Precious Metals
Palladium has earned its spot as one of the four most prominent precious metals, alongside gold, silver, and platinum. Compared to other metals, palladium is known for having a vast array of industrial uses, particularly in the automotive sector.
With a shorter trading history, the price of palladium has fluctuated more than other comparable precious metals. Recently, the palladium outlook was extremely bullish, and it was by far the most expensive precious metal. Since then, prices have pulled back significantly as supply concerns have dissipated.
Conservative investors may be wary of palladium’s price volatility and a lack of historical data compared to other precious metals available. Gold is often a top choice for wealth preservation, and silver can be an affordable alternative that boasts a variety of industrial uses. Platinum and palladium are similarly situated in terms of price, industrial applications, and price volatility.
Investing in Palladium Using an IRA
For those interested in investing in palladium via an IRA, a self-directed IRA is an option. A self-directed IRA is different from a traditional or mainstream IRA because it allows for investing in alternative investment vehicles. Instead of being limited to a specific set of approved securities, a self-directed IRA allows for more flexibility, which could even include real estate and privately held companies.
Oxford Group offers several palladium products for investors looking to diversify their portfolios, including coins, bars, and IRAs. To learn more about these options, contact Oxford Gold Group to speak to an account manager.