A lot of people are talking about gold. It’s a common topic when times are tough because it holds its value while currency depreciates. However, it has lost about 20% of its value since its September high of $1800. Some think gold will rally and are sending out quiet, confident signals to buy. The thing is, whether you’re looking to diversify your portfolio or just guard against another recession, there’s another, cheaper alternative you might not have heard about.
While you’re sitting around scratching your head, wondering whether it’s time to invest in gold and silver, you’ve just let an opportunity pass you by.
Quick, what’s 15 times rarer than platinum and 30 times rarer than gold?
If you answered Palladium, you’d be correct. (But you probably just looked at the title, didnt you?)
Unlike gold, palladium is a precious metal widely used in industry rather than to make jewelry. The automotive industry relies heavily on palladium catalytic converters to help produce cleaner exhaust.
It’s also used by Tony Stark to power the reactor in his chest that kept him alive in Iron Man. Surely, the palladium was toxic and he ended up having to replace it with other elements, but you get the idea…it’s powerful stuff!
The case for investing in palladium is a simple supply and demand argument.
South Africa and Russia are the two big players in the global market for palladium. Together, they represent over 80% of world production. The only problem is that there’s trouble ahead.
In 2012, the world’s supply of mined palladium stood at 6.3 million ounces, which itself was 12% lower than the year before. That itself would make some people sit up and listen to the whole story.
Labor disputes and strikes have put the mining industry in South Africa into shambles. The two main unions are at each other’s throats and the problem hasn’t yet resolved itself.
Meanwhile in Russia stockpiles of the stuff are shrinking. The estimates say Russia will supply even less than the 250,000 ounces they provided in 2012, a figure already dwarfed by the 775,000 ounces they shipped over in 2011.
Not only is supply expected to be constricted, but demand for palladium shows no signs of letting up. The demand for the precious metal is driven by the auto industry – which uses 2/3rds of the world supply – and auto industry is expected to grow, driven in part by the expansion of the middle class in emerging economies like China, India and Brazil.
Seeing as the disputes in South Africa will take time to figure out, and with expected growth in the automotive sector, the foundations are laid for a price appreciation.
So, naturally the question becomes – how can I take advantage of it?
One way is to actually own some palladium, and exchange traded funds (ETFs) offer you a way to do that. The ETFS Physical Palladium Shares (NYRSE: PALL) represents shares of real, physical palladium bars and reflects the performance of the price of palladium. This is not only a convenient but also cost-effective way to invest in palladium, because the fees associated with such funds are low.
Note: Originally posted on the Wall Street Survivor blog on June 12, 2013.