Palladium is breaking all the records.
The price of palladium has increased over 250% in the past 24 months and is now sitting at an all-time high at just over $1,800 an ounce — almost twice the price of its sister metal platinum.
But before you jump in on the momentum, there are several things you should know.
Palladium is a metal we’ve talked about a million times here in Energy and Capital. Due to palladium’s resistance to many types of corrosion, the metal has been used as a store of wealth and capital for decades. And due to the metal’s catalytic properties, palladium is a vital resource amid a hydrocarbon-based energy society. Palladium is an asset that almost quintessentially defines Energy and Capital.
Both palladium and platinum are used for many things. But the main application for both metals is in catalytic converters on automobiles.
These metals act a bit like a sponge to soak up hydrocarbon emissions. Palladium, for instance, can absorb as much as 900 times its own weight in hydrocarbons. That makes these metals ideal for automotive catalytic converters.
More than half of the world’s production of palladium and platinum ends up in catalytic converters. So at the end of the day, the catalytic converter market drives the palladium and platinum markets. Thing is, manufacturers of catalytic converters only need to use either palladium or platinum as the main catalyst metal in their product.
So, throughout the years, manufacturers of catalytic converters have bought the less expensive of the two metals to be used in their products. If palladium were less expensive than platinum, engineers would build catalytic converters using mainly palladium. And if platinum were less expensive, vice versa.
This substitution between the two metals alters the supply/demand dynamic, and prices are affected accordingly. And this is nowhere more clearly seen than in the platinum/palladium price ratio.
In recent years, palladium and platinum have exchanged places as the world’s most expensive precious metal. And now that palladium has taken the throne, it’s almost certain that catalytic converter manufacturers will begin to switch back to platinum.
So instead of jumping in on the momentum of palladium, investors are much better off buying platinum right now.
Investing in Platinum
Investing in either platinum or palladium can present problems. They’re both expensive to buy, investment options are limited, and liquidity for physical bullion can be a problem.
90% of the world’s platinum and palladium mining operations are located in South Africa and Russia. And most of them are in South Africa alone. So you could invest in one of the South African platinum mining companies. But with major social political problems brewing down there, do you really want to invest in South African firms right now for the next five years or so? I don’t.
Another option is platinum ETFs. But due to fees, holding a platinum ETF over the long term isn’t very appealing.
An investor’s best bet to invest in platinum right now is probably physical bullion.
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Now, normally I’d recommend staying away from buying platinum bullion. The premiums for platinum bullion are high.
The premium for platinum bullion typically starts above 10% over market price and only goes higher from there. Compare that to physical gold bullion, which generally carries premiums around 5% over market price.
Moreover, liquidity can be a problem. There are many dealers who sell platinum, but not all will buy your platinum back. You don’t want to get stuck selling your platinum on eBay. So if you do decide to buy platinum, make sure you have a plan to sell it first.
Still, holding a little platinum bullion isn’t going to kill you. And it will mostly be the easiest and most affordable platinum to hold over the long term. So what should you buy?
There are actually a bunch of platinum bullion products. But the only two worth your time are American Platinum Eagles and Canadian Platinum Maple Leafs.
Both come in the standard one-ounce size as well as fractional sizes of 1/10 ounce, ¼ ounce, and ½ ounce. But it’s important to note that fractional sizes always carry higher premiums than their one-ounce counterparts.
There are a dozen highly reputable online bullion dealers you can buy these from. Their prices vary depending on how many you buy and how you pay. So shop around before hitting that buy button.
Buy a few platinum bullion coins, sock ’em away in a drawer somewhere, and wait until you start reading headlines about platinum prices.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
