Jul 2024

How to Invest in Palladium

By StoneX Bullion

When most people think of investing in precious metals, gold and silver come to mind. But palladium is rarer and more durable than gold, silver, or platinum, and it’s quickly becoming a coveted asset in the precious metals market.

Palladium is a valuable metal with several industrial applications, including jewelry, electronics, dentistry, and catalytic converters for vehicles. Its high demand, coupled with recent supply constraints due to its limited availability, has made palladium stand out amongst other metals.

If you’re interested in learning more about palladium and how to invest in this precious metal, keep reading. This article will explore what palladium is, how the metal is used in different industries, reasons to invest in palladium, and how you can invest in palladium.

What is palladium?

Palladium is a shiny, silvery-white metal that belongs to the platinum group metals (PGMs), which also includes platinum, rhodium, and ruthenium amongst others. It was first discovered in the early 1800s by English chemist and physicist, William Hyde Wollaston, and named after the asteroid, Pallas, which was named after Greek goddess Athena (Pallas Athena).

As a metal, palladium is non-corrosive, hypoallergenic, and less likely than other metals to tarnish over time. These characteristics make it popular in various industrial applications, including electronics, dentistry, medicine, jewelry, and even groundwater treatment.

Where does palladium come from?

Most of the world’s palladium supply comes from mines located in South Africa, Russia, the United States, and Canada. It’s generally mined along with other metals, like platinum and nickel. In recent years, the world’s two largest palladium-producing nations, South Africa and Russia, have been experiencing mining disruptions which limited supply.

In South Africa, worker strikes and lack of long-term investment in production facilities interrupted mining production, though this is largely back to normal. Russia produces nearly half of the world’s palladium supply, however its war on Ukraine has placed it on the receiving end of sanctions. In 2022, two state-owned Russian refiners were suspended from the good-delivery lists of the London and Chicago stock exchanges.

What is palladium used for?

One of palladium’s most attractive features is its versatility, and the metal has important use cases across various industries. Below are some examples of how palladium is used in different applications:

Catalytic converters: Palladium’s properties help speed up chemical reactions, and more than 70% of the world’s supply of the metal is used to make catalytic converters. These help convert harmful gasses, like carbon monoxide, hydrocarbons, and nitrogen oxides, into less harmful substances, like carbon dioxide, nitrogen, and water vapor.
Electronics: Palladium has excellent conductivity and is corrosion-resistant, making it a useful metal in the electronics industry, where it’s used to produce multilayer ceramic capacitors (MLCCs) and to plate electronic components and connectors.
Jewelry: Palladium is hypoallergenic, tarnish-resistant, and non-corrosive, which makes it ideal for jewelry. It’s often mixed with yellow gold to form a metal that’s stronger than white gold.
Dentistry: Palladium’s biocompatibility and durability makes it useful in the dental industry, where it’s used to create alloys for crowns, bridges, and other dental work.
Chemical industry: Palladium is used as a catalyst in various chemical reactions, and its use is essential in the production of bulk chemicals, pharmaceuticals, and petrochemicals.
Carbon monoxide detectors: Palladium chloride catalyzes carbon monoxide gas into carbon dioxide, making it a useful metal for carbon monoxide detectors.
Fuel cells: Palladium is used in certain types of fuel cells, which convert chemical energy from fuels into electricity through a chemical reaction.
Investment: Palladium is traded as a commodity and has drawn the interest of investors all over the world due to its unique applications.

Things to know about palladium

Before you start investing in any precious metal, it’s important to understand its background, history, past performance, and other features. This can help inform your investment decision. Below are some things to know about palladium before you invest:

Rarity: Palladium is 30 times rarer than gold and 15 times rarer than platinum. This rarity can affect its price on commodities markets.
Production: More than 200 metric tons of palladium were mined in 2021 alone. Most of this came from Russia (80 metric tons), with South Africa following (74 metric tons), and Canada coming in third (17 metric tons).
Record highs & lows: Palladium’s price experienced record highs in February 2022, when it was priced at more than $2,981. Its lowest price ever recorded was in August 1977, at just $41.70.
Properties: Palladium is more durable than both gold and platinum. It’s also very malleable, able to be worked into thin sheets of one-two hundred fifty thousandth of an inch. These sheets are usually used in solar energy or fuel cell applications.

Why invest in palladium?

So, what makes palladium a good investment? There are several reasons why you should consider investing in palladium, including:

Hedge against inflation: Investing in precious metals, like palladium, offers an excellent hedge against inflation. These physical assets tend to retain their value - and even increase in value - during periods of inflation and currency devaluation. This allows investors to maintain purchasing power during periods of economic instability.
Limited supply: Unlike paper currency, which can be printed at will, palladium has a limited supply. It’s generally considered that finite assets in high demand will exhibit upward price trends. On top of that, palladium’s primary sources are Russia and South Africa. Any geopolitical or operational disruptions in these regions will impact supply and likely drive up prices.
Portfolio diversification: Investing in palladium, and other precious metals, is a great way to diversify your portfolio and balance overall risk. Precious metals tend to move in opposition to traditional markets. When assets like stocks or bonds depreciate, precious metals increase in value, and vice versa.
Potential for high gains: The palladium market is highly volatile, offering opportunities for significant gains. While this can come at a higher risk, the price fluctuations can also offer higher returns.

Continue Reading: Why You Should Consider Silver Investment

How to invest in palladium

There are a few different ways to invest in palladium, and each offers its own advantages and disadvantages depending on your priorities and investment strategy. Below, we look at three different ways to invest in palladium, including pros and cons of each.

Palladium ETFs

Palladium exchange-traded funds (ETFs) are index funds that are traded on exchanges like stocks. These funds can either hold physical palladium or invest in futures contracts and other palladium-related assets. Buying shares of a palladium ETF allows you to gain exposure to palladium’s price movements without having to own the physical metal itself.

Here’s how palladium ETFs work: When you buy shares of a palladium ETF, you’re buying a portion of the fund’s assets. These are usually backed by physical palladium stored in secure vaults or by financial instruments tied to palladium prices. The value of the ETF shares will fluctuate depending on palladium’s price, and you can buy or sell shares on stock exchanges throughout the trading day, just as you would with stocks.

Pros of investing in palladium ETFs

The advantages of investing in palladium ETFs include:

Liquidity: ETFs are highly liquid and can be traded on major stock exchanges. This makes it easy to buy and sell your palladium shares.
Convenience: ETFs are a convenient way to gain exposure to palladium without having to deal with purchasing, storing, or insuring the physical metal itself.

Cons of investing in palladium ETFs

The drawbacks of investing in palladium ETFs include:

Management fees: ETFs usually charge management fees, which can reduce overall returns. If you plan to invest in palladium ETFs, be sure to look up the fees beforehand.
Tracking errors: Slight discrepancies can exist between the ETF’s performance and the actual price of palladium. While these may be marginal, they can add up over time.
Market risk: Like all publicly traded securities, palladium ETFs are exposed to market risks, like price volatility and potential liquidity issues during periods of market stress.

Palladium bullion

Palladium bullion essentially means buying physical palladium in the form of palladium bullion bars or coins. This allows you to directly own the metal, offering tangibility and security.

You can buy palladium bullion bars or palladium coins from precious metals dealers or mints, and choose to store them at home, in a bank’s safety deposit box, or in a professional security vault. The value of your palladium bars or coins will be directly tied to palladium’s current spot price.

Pros of investing in physical palladium

The advantages of investing in palladium bullion include:

Tangibility: Physical palladium is a tangible asset that you can hold and store, offering a sense of security and ownership that doesn’t exist with other forms of palladium investment.
No counterparty risk: By owning the physical metal itself, there is no counterparty risk. This means you don’t need to rely on a financial institution or third party to come good on their promises.
Intrinsic value: Like other precious metals, palladium has intrinsic value that makes it a valuable commodity to hold.

Cons of investing in physical palladium

The drawbacks of investing in palladium bullion include:

Storage considerations: Buying physical palladium comes with extra consideration for secure storage, and potentially insurance. This can come with an additional cost.
Liquidity: While physical palladium is still highly liquid and can be easily bought and sold, it’s not as liquid as ETFs or other investments which can be sold at the click of a button.
Premiums: Buying physical palladium usually includes paying small premiums over the spot price, which can reduce returns slightly.

Palladium mining stocks

Investing in palladium mining stocks involves buying shares of companies who engage in exploring, extracting, or producing palladium. These are usually listed on major stock exchanges and provide indirect exposure to palladium prices through their business operations.

The performance of palladium mining stocks will depend on various factors, including palladium’s price, the company’s production levels, and overall market conditions. Because the profitability of these companies is usually tied to palladium’s market value, mining stocks can provide leveraged exposure to palladium prices.

Pros of investing in palladium mining stocks

The advantages of investing in palladium mining stocks include:

Leverage: Mining stocks can offer leveraged exposure to palladium prices, potentially offering higher returns.
Dividends: Some mining stocks pay dividends, which can provide an extra income stream in addition to capital appreciation.

Cons of investing in palladium mining stocks

The drawbacks of investing in palladium mining stocks include:

Operational risks: Mining companies are exposed to various operational risks that can impact their performance, such as regulatory changes, environmental issues, or labor disputes.
Volatility: Palladium mining stocks can be more volatile than the actual metal’s price, adding risk to your investment.
Company risks: When you invest in palladium mining stocks, you’re open to added company risks, such as management decisions or production costs.

Keep Reading: How to Invest in Platinum: Tips & Strategies

What affects the price of palladium?

Palladium’s price is influenced by various factors. Being aware of what affects the price of palladium can help you better understand its price fluctuations and spot opportunities to buy or sell your holdings.

Supply and demand: Like other commodities, palladium prices are influenced by the laws of supply and demand. High demand and low supply drives up prices, and the opposite is true.
US dollar: A weaker US dollar tends to increase palladium prices, and vice versa.
Automotive industry: Because most of the world’s palladium is used in the automotive industry, its price is heavily dependent on the success of that industry. When the automotive industry is thriving, palladium demand is higher and so are prices.
Recycling & substitution: Some palladium products, such as catalytic converters, can be made using recycled materials. A healthy recycling market indicates an increased supply of palladium, which can lower prices.

Keep track of palladium’s fluctuating prices with our palladium price chart. This chart is updated in real-time to give you the most up-to-date information about the palladium market.

See Similar: What Drives Silver Prices?

Start investing in palladium

Palladium is a rare, durable, and versatile metal with important uses across various industries. Increasing interest from investors, coupled with supply constraints, make palladium a rising star in the world of precious metals investing. If you’re ready to start your palladium investing journey, you’re in the right place.

At StoneX Bullion, we offer a vast range of physical palladium investment products, including palladium bullion coins and bars from the world’s best-known mints. View our collection of pure palladium bullion and add an exciting investment to your precious metals portfolio today.