Disclosure: We are reader-supported. If you buy through links on our site, we may earn a commission. Learn more.
Palladium is known as a metal in the "platinum group metals". And yet, the price gap between platinum and palladium has never been wider. Whereas platinum's price once stood above that of gold, it now sits at $954 an ounce. Gold has most recently traded above $1,846.
And palladium? Despite all the market selloffs as of late, it's still holding above $1,889. Even that was a massive drop. Over the past few years, palladium's price being 10%-20% higher than that of gold was the norm. So what gives?
Investing in Palladium
Many will undoubtedly find it strange that the least known of the four precious metals has outstripped gold in such a manner. If you aren't familiar with precious metal investments, there's a good chance you haven't heard of it. And while far from non-existent, physical palladium options are far less diverse compared to any of the other three precious metals.
And yet, as far as price is concerned, palladium still reigns supreme. It's, without a doubt, the breakout precious metal of the last decade. Its valuations aren't the result of a pump scheme. Rather, its lofty prices have to do with palladium's unique properties as a metal and a supply picture that keeps getting more and more strained.
You can't be faulted for knowing little about this metal or having shown little interest in it so far. But as we outline just what has propelled palladium prices above those of gold, we hope that you'll come to understand why it continues to earn its spot as one of the four precious metals.
Related: Protect Your Retirement Savings with Gold, Silver, Platinum, and Palladium (Tax-Free)
Why and how did palladium reach its current price?
In April 2014, palladium hit $800, the highest level in over two years. The consensus was that the positive action can continue, but many wondered how much. $850? $950? As palladium blasted above $2,000, a few things became clear.
Palladium is the most industrial precious metal, one might argue by a wide margin. Palladium jewelry exists, but there's a chance you didn't know that. Some are even surprised to hear that easy-access investment options in the form of palladium coins and bars exist.
70% of global demand for palladium comes from the automotive sector alone. That's a massive percentage for what's considered a precious metal. While having such a huge demand allocation to industry might make the metal overly dependent on economic strength for those looking for safety investments, it's balanced out by both its properties and its supply.
Related: Gold vs Silver - Comparing the Two Precious Metals
Is palladium's supply strain really as bad as it's made out to be?
It has actually been made worse as of late. While everyone talks about Russian palladium, we'll start with the lesser of two issues. Roughly 35% of all of the newly-produced palladium comes from South Africa. It's not the most stable country in general, nor is its mining industry rosy. Strikes, mine closures and rising costs are the norm. There's a sizeable amount of difficulty with trying to open a mine there just on the geopolitical front. And once it's open, the aforementioned issues will almost undoubtedly plague it.
Then we get to Russia. Russia is known for its reliance on oil exports, but what is too often overlooked is that palladium is its main metal. Russia produces 40% of the world's palladium during a time when palladium use and demand is growing. Until recently, the country was known for being hit by Western sanctions left and right. Much like in the case of South Africa, while the geographic climate might be the opposite, the geopolitical climate is a strained one. While opening a palladium mine in South Africa is difficult, many outright forgo trying to open one in Russia.
Russian palladium is therefore, in essence, state-mined. Like the rest of Russia's exports, the world's access to Russia's palladium is subject to the state's whims. And considering the nation recently invaded Ukraine in what is proving to be the biggest military conflict in modern era, those whims can be turbulent. Large-scale options to trade palladium could soon be a lot more limited.
Is it good to buy palladium right now?
The immediate aftermath of the invasion saw palladium's price jump and palladium miners in Russia doing damage control and assuring everyone that they have enough stock. That paints a fairly clear palladium price forecast.
We know that gas has jumped massively after the invasion. There are now talks of Russia separating itself from the world, in a sense, causing nations to scramble for both oil and palladium. Right now, it's looking like there could be a serious supply deficit, or even supply reimagining, of both petroleum and palladium. Guess which one of those comes in the form of conveniently-sized investment-grade coins and bars?
Related: Free Investor Kit - How to Diversify Your IRA with Precious Metals
Best Gold IRA Companies 2023
Buying gold with your 401(k)? We've compiled a list of the top gold IRA companies for 2023.
Why is palladium so valuable in industry?
As mentioned, palladium, not unlike other precious metals, has unique properties that separate it from any other material. The International Platinum Group Metals Association gives us some in-depth insights into these.
It can absorb 900 times its own volume of hydrogen at room temperature, making it key in anything that involves air purification or hydrogen purification or storage. And while this includes quite a few devices, things tend to default back to the automotive industry.
Palladium use in manufacturing, for many, revolves around its place as a component in catalytic converters in vehicles. In line with the above, catalytic converters reduce the toxicity of fumes coming out of a vehicle engine. Practically every country in the world is making a huge deal out of environmentalism these days. While we'll leave the debate on how solid the science behind it is for another conversation, the science behind palladium's utility is rock-solid.
Why palladium jumped while platinum slumped
So long as every country in the world continues to push for lower emissions, which is looking to be past 2050, palladium is going to be in high demand. Palladium's use in vehicles is intrinsically tied to petrol. Until we see petrol replaced in vehicles, we aren't going to see palladium replaced in them, either. And for all the hype around electric vehicles, estimates are that 85% of passenger cars by 2030 will still use classic fuel. Commercial vehicles are going to be exponentially more difficult to replace in regards to engines.
The long-term industrial picture is therefore set. There is no question that palladium has benefited from more stringent regulations on diesel engines, whose catalytic converters use platinum instead. But even in the absence of these, we would probably see an outperformance: there is an annual surplus of platinum and a deficit of palladium. And it's not for lack of appetite in the manufacturing sector when it comes to platinum, but rather the difficulty of obtaining palladium.
Minted bar of palladium weighing 10 grams sealed in tamper-proof packaging
Less known things about palladium
A thriving jewelry sector
If you figured that palladium is the only precious metal to not have a jewelry sector, you're in for a surprise. Its use in jewelry is somewhat similar to platinum, though it bears mentioning that palladium is more malleable and therefore allows for greater craftsmanship.
The percentage of palladium demand attributed to jewelry in relation to industry or investment is minor, but far from negligible. In our platinum overview, we mentioned how consumer demand for platinum slumped as its prices slumped, too. Are we wrong to expect the opposite with palladium?
More deficit than manufacturers would like
No precious metal is complete without scarcity, and palladium is one that is becoming an eyesore. Its production has been in deficit for over a decade. Last year's figures had a deficit of 400,000 ounces in the palladium market, tying it closely to the price increase.
That was before the Russian invasion occurred. As the biggest palladium producer in the world looks to separate itself from the world, everyone is waiting to see if this deficit can get worse, and by what margin.
Related: Protect Your 401(k) with Gold, Silver, Platinum, and Palladium (Tax-Free)
What are the options to invest in palladium?
Like all precious metals investing, you can choose between physical and paper. While physical tends to be a straightforward choice, it perhaps bears reiterating just how important the lack of counterparty risk is when it comes to palladium. Do stocks in a palladium mining company operating in Russia sound attractive right now?
When it comes to investing in palladium bullion, it almost becomes a matter of spreading awareness. Gold and silver are getting all the spotlight. We have to wonder how many investors know that palladium bullion not only exists, but is investment-grade, often IRA-eligible and easy to obtain.
Related: Precious Metals IRA Rollover Guide - Ultimate Investor Guide
Palladium has the same IRA-eligible bullion purity requirement as platinum does, .9995 or higher. It's more than the purity requirements of gold and silver, but far from prohibitive. The choices when it comes to physical palladium investment include:
- Coins, such as the American Palladium Eagle and Canadian Palladium Maple Leaf. Sovereign mints took the longest to approve these coins for mintage out of any precious metal, making them a somewhat new addition to the market. The Russian Ballerina Palladium coin is another exceedingly popular sovereign coin that, like the other two choices, can be part of an IRA.
- Palladium rounds are a cheaper version of palladium coins, made by private mints and often IRA-eligible. These are a great option for palladium investors who aren't too specific when it comes to name recognition, especially since they can come in much smaller weights than coins while still sporting appealing designs.
- Palladium bullion bars, as in the case of every other precious metal, will be a preferred choice of gaining exposure for many. Minted by private mints and almost universally IRA-eligible, they come in weights ranging from 1 gram to 1,000 grams. Keep in mind, though: smaller product, higher premium.
For all that's said about palladium's industrial purposes, we have to go back to why precious metals, or any metal, was used as money to begin with: scarcity. The rarer the metal was in times of sound money, the more expensive it was.
This alone makes the case for palladium investing, as it's considerably rarer than the flagship precious metal, gold. With the ongoing supply deficit and production issues, the relationship between palladium and gold will undoubtedly continue to be an exciting one to observe.
Is investing in palladium a smart move for you and your finances? Discuss with your trusted financial advisor, or request more information from a reputable precious metals dealer below.
