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When people think of buying precious metals, gold and silver are often the first things to come to mind. Those who think outside the box might even decide that platinum is a great buy. Unfortunately, many folks overlook the enormous profit potential of investing in palladium.
Referred to as a “silver-white metal,” palladium has a long history in the jewelry industry. In fact, it’s one of the three most popular metals used as an alloy in white gold. As its value skyrocketed in recent years, however, this precious metal became a popular way to store value for the future.
Before you invest in palladium, though, it’s important to understand a few vital facts. Becoming an informed investor is the best thing you can do to improve your financial health. Once you’ve finished reading this guide, you’ll be in a better position to invest wisely.
What Is Palladium?
Before diving into why palladium is currently so popular and the best ways to invest in it, it’s important to have a basic understanding of this metal. Palladium is a precious metal used chiefly in the automotive industry, and only a few companies control its mining and production.
While it’s important to not overlook its use as an alloy metal for white gold, palladium production primarily goes toward auto parts. Its use in catalytic converters helps control exhaust emissions. Of course, it has other uses outside of this industry as well.
- Dental devices.
- Chemical uses.
- Electronics industry.
- Aircraft spark plugs.
- Blood sugar test strips.
- Musical instruments.
While a sudden reduction in palladium would affect each of these uses, you’ll soon come to recognize why the auto industry is the major reason investing in palladium is currently so popular. And once you understand this, the metal’s value as an investment will become obvious.
Why Is the Price of Palladium So High?
If you’re considering investing in palladium, it’s likely because you’ve noticed its meteoric rise over recent years. For most of the new millennium, the price of gold and platinum both far exceeded that of palladium. Once 2017 came around, though, a slow shift started.
Near the end of 2017, palladium surpassed platinum in value. Just a little over one year later, it did the same to gold. This lesser-known precious metal — which many people didn’t realize was in their cars — suddenly became more valuable than everyone’s favorite hedge against inflation.
There are various causes of why this happened, and understanding each of them is important for making an informed investment decision.
If there’s any reason someone should start investing in palladium now, it’s the continuing deficits we’re seeing yearly. These deficits have risen into the range of hundreds of thousands of ounces. While many things can explain this deficit, it primarily comes down to mining.
Palladium is actually a secondary product of nickel and platinum extraction. This means increasing production as demand rises isn’t that simple. As long as these deficits continue, you can expect investing in palladium to remain a profitable financial decision.
Disruptions in Mining
Between December 2019 and February 2020, the price for an ounce of palladium increased about $600. Continuous power outages in South Africa significantly contributed to this since the country produces 40% of the world’s palladium supply.
Rolling blackouts can shut down entire mines and hinder production. Unfortunately, the few months near the beginning of 2020 weren’t the only problem. Blackouts have been the norm in South Africa since 2007. If this trend keeps up, it’s easy to assume that deficits will continue.
Investing in palladium is only the right move if you understand why it’s valuable. And since over 80% of all palladium produced yearly goes directly to motor vehicle manufacturers, it’s a pretty safe assumption where the value lies.
The catalytic converters containing palladium are an automotive part that controls emissions. Because of tighter environmental regulations in recent years, car makers have had to increase the use of these components.
Even if many investors don’t realize it, palladium is a key element in reducing greenhouse gases. As governments become more focused on fighting global warming, the demand for palladium will no doubt rise.
Shifts Away from Diesel
The Diesel Emissions Scandal — which involved Volkswagen manipulating emission test results — resulted in consumers shifting away from vehicles running on diesel. While these engines use platinum in their catalytic converters, gas-powered cars use palladium.
Who would’ve predicted that Volkswagen could immediately increase the value of investing in palladium?
The Final Effect?
Even if you’ve never heard of these events, their effects on the price of palladium are undeniable. Between January 2016 and May 2021, there was nearly a sixfold increase in the price per ounce of this precious metal. Fortunately for investors, this seems like more than just a fluke.
We’ve seen major fluctuations in the price of precious metals, and we can often pinpoint the cause of this to the overall market. When investing in palladium, though, the precious metal seems to exist outside of normal economic factors. Demand is high, and it might just stay that way.
How to Invest in Palladium
There are a few ways to invest in palladium, and it’s important to understand each before you get started. This guide will delve more into stocks and exchange-traded funds (ETFs) in the next section, but focusing first on physical bullion seems more appropriate.
The benefits of owning physical palladium are many — the most important being your access to actual value rather than paper value. The following are the primary ways to invest in this precious metal via physical bullion:
Buying palladium coins is one of the most popular ways to invest in the metal. Every coin carries intrinsic value and a solid face value. This is why buying and selling them is so easy.
The following are some of the most popular palladium coin options:
- Canadian Palladium Maple Leaf Coins (1 ounce).
- American Eagle Palladium Coins (1 ounce).
Individuals currently investing in palladium focus on continuing shortages, but these coins may become even more scarce. As governments recognize the need for the precious metal in other industries, their production of these rounds is likely to decline.
Palladium Bullion Bars
Buying palladium bars offers a diverse investment opportunity. This is because you can opt for simple bullion bars with no frills. Always make sure, however, that you’re buying from a reputable company.
Many people choose to invest in scrap palladium as well, but this carries a few significant issues. The most important is that these items need recovery and refinement. This is a costly process that the common investor in palladium cannot perform.
Storing an enormous collection of catalytic converters as an investment is also prohibitive. When you purchase coins and bars, though, you can keep them at home or in a safety deposit box. For larger collections, allocated precious metals storage is a better idea.
Investing in ‘Paper Palladium’
Similar to other precious metals, investing in palladium without physically owning it is possible. Purchasing stocks and exchange-traded funds is a great way to do this. Many investors enjoy putting their money behind palladium without having to take physical possession of bullion.
This type of investment carries many positive attributes. High liquidity and flexibility are both advantages of non-physical assets, but palladium bullion shares these same advantages. The major benefits are affordability and avoiding storage needs.
If you’re considering “paper palladium,” the following are some of the most popular methods of investing:
- Physical Palladium Shares ETF (Fund).
- Sprott Physical Platinum & Palladium Trust (Fund).
- Physical Precious Metals Basket Shares (Fund).
- Aberdeen Standard Physical Palladium Shares (Fund).
Unfortunately, there are some major drawbacks to investing in palladium via stocks and ETFs. The biggest problem is that the precious metal doesn’t belong to you. You have no way of taking physical possession of bullion if an emergency need suddenly arises.
Additionally, these stocks and funds won’t always track precious metal price charts. Poor management, expense ratios, subpar performance of other assets, and even random market whims can drastically affect the value of stocks and ETFs.
Investing in palladium is a personal decision — as is the way you choose to invest — but knowing the disadvantages of “paper” bullion investing is vital for making an informed choice.
Start Investing in Palladium Today
No one saw it coming at the turn of the millennium, but buying palladium was definitely the right investment move. Improved environmental regulations, limitations in mining production, and many other factors have played a role. Fortunately, it’s not too late to get on the palladium wagon.
There’s no way to predict the future price of any precious metal, and this remains true even when investing in palladium. If the past few years are any indication, though, demand for the precious metal will likely far exceed production. This is splendid news for investors.
Whether you’re a veteran with investing in this silver-white metal or just starting out, Silver Gold Bull has everything you need. View our Palladium Products page to get started on securing your financial future.