Investing in Palladium

Precious metal enthusiasts who have invested in platinum might also be interested in investing in palladium, platinum’s less-expensive cousin. The silvery-white metal palladium, like platinum, is a platinum group metal; discovered in 1803 by William Hyde Wollaston, it was named after the asteroid Pallas that had been discovered the year before. Although “palladium” references the Pallas Athena, the Greek goddess of wisdom, investors will need to determine for themselves if a palladium investment is a wise opportunity.
Palladium price swings
Palladium has a variety of uses. The oxidation-resistant metal is most commonly used in the manufacturing of car exhaust systems, and like platinum, reacts in a manner that combats pollutants. Palladium is also used as an alloy in jewelry, especially in the production of white gold. Palladium may increase in popularity among jewelers and jewelry buyers, as its prices tend to be much lower than that of platinum jewelry.
Another notable feature is palladium’s ability to soak up huge volumes of hydrogen, which has become a focus for cold fusion and fuel cell research, according to PalladiumDealer.com.
Although solid demand for palladium is apparent, palladium supply is much less predictable.
Palladium and platinum are both among the world’s scarcest metals, according to PalladiumDealer.com. Furthermore, frequent production and supply problems in the two major sources of platinum and palladium—Russia and South Africa—add to volatility in the metals’ markets, according to the CMI Gold & Silver dealer website. More than half of the world’s annual supply comes from Russia alone, which has routinely withheld supplies of palladium from world markets for its own political and economic gain, according to the website for broker company Superior Gold Group.
The Canadian mint has been producing palladium bullion coins since 2005Supply disruptions can potentially result in extreme price swings for palladium, as evidenced by the panic that occurred in early 2001 among auto manufacturers.
“[Because of] supply disruptions and a resulting panic by auto manufacturers (most notably, Ford Motor Co.), the price of palladium reached an all-time high of nearly $1,100 an ounce, approximately the same price as platinum at the time,” according to the Superior Gold Group website.
The price spike nearly crushed investor demand, according to CMI Gold & Silver; however, palladium prices dropped back to $200 per ounce by the end of that year and investment demand has since returned.
In the past five years, prices have fluctuated from less than $200 per ounce in March 2003 to $579 at the end of February 2008, according to Kitco.com.
Recent prices are still significantly higher than what they were five years ago. Palladium's spot price closed at $453 per ounce on March 25, according to Kitco.com
Prices for platinum, however, are significantly high in comparison. Five years ago, platinum sold for more than $600 per ounce, and a recent spike in the past month drove prices up to $2,276 per ounce.
The platinum spot price closed at $1980 per ounce on March 25, according to Kitco.com.
Investing in palladium
There is no consensus about the wisdom of investing in palladium. For instance, palladium was named the “best investment among precious metals” in 2007, according to an article in The International Herald Tribune last May. But CMI Gold & Silver rarely recommends investments in palladium or platinum because “it is difficult—if not impossible—to anticipate the next bombshell to be dropped on the palladium or platinum market,” according to the website.
Because of the exposure that results from the metal’s market volatility, investors who are interested in buying palladium should try to buy when it is trading at or below its 200-day moving average, according to the CMI Gold & Silver website.
When palladium or platinum trade at double the price of gold, it is also recommended that investors consider trading palladium or platinum for gold or silver, according to the website.
Investors can purchase palladium in the form of bullion bars or coins.
For bullion bars, CMI recommends that investors buy Credit Suisse or PAMP one-ounce bullion bars, which contain 99.95 percent palladium, the industry standard for palladium bullion bars sold into the investment market. Credit Suisse and PAMP are two of the best-known precious metal names in Europe.
While palladium bullion has been around for some time, palladium coins are a relatively new phenomenon. In 2005, the Royal Canadian Mint (RCM) began striking palladium Maple Leaf coins, according to the CMI Gold & Silver website. Each coin contains one ounce of 99.95 percent of pure palladium and can be used as $50 legal tender in Canada; spending palladium coins, however, is not recommended, as it will almost certainly result in major losses on investment.
Generally, palladium coins carry lower premiums than palladium bullion bars. Investors who are interested in purchasing palladium coins should consider buying palladium Maple Leaf coins dated 2005, which may achieve collector status.
“The first run of Palladium Maple Leaf coins were limited to 40,000 and were dated 2005 (minted early November 2005). This means that 2005-dated Palladium Maple Leaf coins probably will turn out to be a small mintage relative to years during which the coins will be minted for twelve months,” according to the CMI Gold & Silver website. “Therein lies a unique opportunity for the palladium investment community.”