July 20

Investing in Palladium: Smart Investment?


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Palladium is worth more than gold. It's been worth more for years. Should we remove gold from its place atop the precious metal heap? After all, isn't the most expensive precious metal "the gold standard?"

Palladium's outperformance has captured the attention of anyone interested in commodities or even investment in general. There is little question that it's an under-the-radar metal: many don't even know there's easily-accessible investment-grade palladium bullion.

But is it smart to start investing in palladium? Does it really outstrip gold, and will it continue to do so down the road? Understanding palladium's role in the context of precious metals investment is key when making decisions regarding your portfolio allocation and long-term exposure.

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Is palladium a good investment?

The most important thing to understand about precious metals investing is that one can't really go wrong. Gold, silver, platinum and palladium are all good investments. They hold value and they appreciate over a longer period of time. 

That separates them from the majority of investments. They have an innate safety to them. And it helps that they're some of the most convenient assets to acquire, too.

But as we get deeper into every precious metal, we notice how different they are from one another. Gold and silver tend to stand on one side. The first, slow, expensive and steady. The other is volatile, cheaper and more exciting. So is true with platinum and palladium.

Though silver shares some similarities with platinum group metals, they are relatively negligible. Silver's investment component is far more pronounced than that of either platinum or palladium. That means economic downturns and technological shifts make the metal considerably less volatile.

In the case of platinum and palladium, that's not really the case. Yes, both are popular as investment-grade and both are used in jewelry and so on. But the reason we're mentioning platinum so much in a palladium article is because the former is, essentially, a picture of the inherent risks associated with investments that don't just "sit there". 

What's the association with platinum?

Platinum once stood where palladium is now. It was, and still is, very scarce. More so than gold. It was used in investment primarily for this reason. Yet the primary driver of platinum's price was its use in the automotive industry.

Platinum was a key component in diesel engines, which were once a key component of the automotive industry. But, as anyone can tell you, they've fallen out of favor

Regulations around the globe have made diesel engines unpopular, so to speak. If you own a diesel engine vehicle yourself, you've probably encountered this phenomenon, ranging anywhere from higher costs to others telling you you're a bad person.

Platinum's fall from grace was swift on one hand and prolonged on another. Either way, the industrial precious metal that was once valued more than gold found itself sitting half below gold's price.

The palladium market went the opposite route. The seeming lack of appeal, if only in regards to headlines, over diesel engines meant that less platinum was to be used. Palladium, a petrol mainstay, took its place.

This kind of industrial volatility shows why platinum and palladium investing, despite their status as precious metals, comes with an inherent risk. But with it also comes a lot of upside. For example, a lot of people have been getting excited over platinum's cheap price, saying that it can't get much worse. They're buying the dip.

Palladium investors right now are buying despite lofty valuations. That speaks volumes about the metal's outlook in regards to supply, demand and general view.

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Palladium and the Russian connection

Whereas platinum continues to see a supply surplus year-on-year, palladium is seeing a supply deficit. The basest of supply-and-demand dynamics dictate that this means the price of palladium must go up. 

Unlike in the case of the heavily-paper-traded physical gold, there is little room for IOUs when it comes to palladium. Manufacturers need a given amount of metal each year, and if they can't get it, it has to go up.

Around 40% of the world's palladium comes from South Africa, a country riddled with conflict on every level. Another 40% comes from Russia, a country that recently invaded Ukraine and has been slapped with sanctions by the West as a result. What do these sanctions include? No Russian imports is a buzzword.

There has been plenty of effort to halt Russian exports of gold to the West. If restrictions limit Russia's ability to trade palladium, which we can very much expect to be the case, it will mean that 40% of the global supply of palladium has been taken off the map. "Officially", that is.

South African mine output has been decreasing year after year, and even before the invasion of Ukraine, Russia was a difficult country to open a mine in, especially by a foreign company. So 80% of a highly-demanded metal is localized to two countries that have a complex exporting and geopolitical picture to say the least.

Palladium has fallen despite some predictions that it would go up, but mostly due to a broad pullback in precious metals and a general weakening of the global economy. It's still comfortably above gold. Will it go up, or will it experience the same fate as platinum? 

This kind of volatility is what attracts investors to metals like palladium. The window for huge gains is obviously there. And while major losses can be sustained, they aren't a wiped-off type of thing. The assets still remain valuable, just less so compared to their previous price ranges.

Related: Buy Palladium and Platinum with Your 401(k) - Free Investor Guide

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What is palladium's long-term outlook?

The outlook for platinum group metals is very complex, and palladium is no exception. For all the talk about green energy, it's still failing to meet expectations of everyone that had any. After all, silver is to solar panels and electric vehicles what palladium is to petrol, but also diesel engines. And how have each been performing as the world's governments attempt to push everyone away from fuel?

Without getting too much into the engineering side of things, we'll try to go over why the shift to EVs and "renewable energy" remains a dream. The reality is that both diesel engines and petrol engines work better than their EV counterpart. 

After all, for all the subdued demand for diesel vehicles we've heard, it still only relates to consumer vehicles. Commercial diesel vehicles still rely on the fuel everyone's trying to shun. What does that tell us about the prospects of abandoning both diesel and petrol?

For palladium to dip in any significant way, we'd have to see a complete shift in the automotive industry. But the technology isn't there, and it's dubious if it will be however many years down the line. 

Diesel and petrol vehicles still work better and are more accessible, and they use catalytic converters. Until that changes, palladium's price is likely to continue its broad uptrend.

Likewise, it would take a reduction in palladium demand and a change in palladium supply, or both. Since palladium supply has only worsened over the last 50 years, we'll focus on demand instead.

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Platinum group metals - a tale of price

Platinum can be used instead of palladium in petrol vehicles, but this tends to only be feasible if platinum is less than half of palladium's price. What happens if this substitution starts to take place? 

Manufacturers start pouring into platinum, platinum's price goes up and palladium's down. Everyone asks: "Why are we using platinum instead of palladium with these prices?"

And palladium demand is restored. That's why, despite the fairly dismal and protracted fall that platinum has had, long-term platinum investors aren't panicking. The same can be said of palladium. It can only fall to a certain point, and its previous price point is likely to be restored later. As we said, gold and other precious metals only carry so much risk compared to other investments.

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What are the investment options for palladium?

When it comes to any precious metal, owning actual bullion is how you want to go about things. Palladium ETFs and the like, to many, aren't worth the paper they're printed on. Since they're traded digitally, that's a figurative saying: they're worth even less.

Physical palladium investment options are surprisingly diverse and appealing for a fairly fringe precious metal. Here are some examples of palladium bullion that can go into an IRA:

  • The American Palladium Eagle, both in bullion and proof versions. The IRS is known to make an exception when it comes to including American Eagles in an IRA, and this one is no different. The coin is a very recent product itself, having been launched in 2017.
  • The Canadian Palladium Maple Leaf, the latest addition to the flagship Maple Leaf series in regards to the metals. More top sovereign mints branching off from platinum coins and making palladium coins can be seen as a nod to the latter and a testament to palladium becoming commonplace.
  • Russian Ballerina coins, an exceedingly popular item among collectors that was only issued between 1989 and 1995. Available in multiple denominations, this coin has only become more sought-after as palladium's price skyrocketed and bullion IRA investment became widespread.

So long as the minimum .9995 purity is met, any palladium rounds and palladium bullion bars are also IRA-eligible provided that the issuer has an ISO 9000, COMEX/NYMEX, LME, NYSE/Liffe or LBMA accreditation. The more, the merrier. This applies to both sovereign and private mints of any size.

Related: How to Add Palladium Bars and Coins to Your Retirement Account - Free Investor Guide

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Palladium - a precious metal for the risk-tolerant

Silver is often claimed to be a cheaper alternative to gold. And for entry-level investors, it might be. But no experienced investor buys silver because it's cheap. They buy it because it's cheap relative to its value, because they're enthusiastic about its future prospects, and so on.

The same holds true for palladium. In January 2016, platinum traded at a 7-year low of $820 and palladium rose slightly to $500. How freaked out were investors that bought platinum above $2,000? These days, it's trading at $856 during a time of massive weakness in the global economy and a pullback in the precious metals market. That's the resilience of precious metals on display.

Palladium prices exploded to nearly $2,000, even above before the pullback, in the meantime. We're giving you a worst-case scenario of platinum to show what a worst-case scenario of palladium would look like. Long-term, it's still a valuable investment.

If we let any optimism come into play, we can say that there's a lot more room for appreciation as demand increases and supply dwindles. Governments want to do away with diesel and petrol engines by 2035-2050, but with what technology? EVs are neither clean nor functional, which is why silver is hitting new lows during a massive global green energy push.

is palladium a good investment

Investing in Palladium? The decades to come...

Palladium is a great investment now, but it will be defined in the decades to come, as will the rest of platinum group metals. Will we finally come to terms that diesel and petrol are used for a reason? Will there be an unforeseeable shift in the automotive industry? Is palladium's supply going to get even worse?

It's this kind of speculation that entices palladium investors. They're speculating, but within the confines and comfort of value. If guessing the palladium price forecast entices you, the metal will certainly be a good choice. You can only go so wrong with it, but there's plenty more room to go right. 

Palladium, despite limitations in regards to craftsmanship, has also been taking off in the jewelry sector. Like in the case of platinum, this is mostly irrelevant to the price. 

But it tells us that the metal is, slowly but surely, creeping into the mind of the everyday person as something to show off. Something that has intrinsic value. That alone is an important consideration when evaluating the pros and cons of investing in palladium.

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About the author 

Ilir Salihi

Ilir Salihi is the founder and senior editor at GoldIRASecrets.com. He oversees all content for GoldIRASecrets and its partner sites. His articles and insights have been featured on Barchart, Benzinga, and Investing.com, among other prominent media channels.

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