Palladium – An underrated commodity
When we talk about buying precious metals, we hear about gold, silver, and Platinum. We’ve covered all of these before; they are used as a hedge against market volatility and traded heavily on exchanges. But why is the 4th member of the family so underrated, so less explored? Why do we not hear about palladium prices? Is palladium even traded on exchanges? Who even buys that stuff?
Most of the world’s palladium comes from two countries: Russia (44%) and South Africa (40%). And unsurprisingly, about 80% of the mined palladium is used in the automobile industry. In petrol cars, palladium is used in catalytic converters to control exhaust emissions. While in diesel cars, Platinum is used instead. Why all this metallurgy again? We’ll talk about this later in the article. Palladium is sometimes traded in the form of coins, bullions, and futures contracts on exchanges. It is not very liquid; hence investors don’t prefer it, but all this might change. Look at the graph below. We see that the demand has increased steadily over the years, and since 2012 there has been a net deficit of palladium every year.
The reason for this is the growing demand for automotive vehicles, especially in India and China. As of 4th September, Palladium was trading at $2343.20 / Oz. Gold, on the other hand, was trading at $1937.60 / Oz. This means that palladium is currently the most expensive out of the precious metals!
Now, there is another explanation as to why there has been a sudden rise in palladium prices. It’s all got to do with the European diesel car scandal that happened some time ago. As mentioned earlier, diesel cars use Platinum, and petrol cars use palladium. The European Union sets a limit to the amount of greenhouse gases a vehicle can emit. It was found that diesel cars were not meeting the standards for quite some time. This led to an increase in demand for petrol cars, and indirectly palladium, leading to its gradual rise.
The problem is it is not commonly used for making jewellery (people need something to show off). This, combined with the sizeable bid-ask spread, makes the market less liquid. But this may change in the coming years when it starts giving better returns than gold or silver.
One question that is open to interpretation is: how would electric vehicles affect the price of palladium? It is predicted that by 2040, the majority of the cars produced would be electric. Would that mean that in the long run, palladium would not appreciate? We don’t know for sure; We can say with confidence that for the next 10-15 years, we might see a severe palladium rally! It’s time for investors to start looking at palladium with more respect!
