How to Trade Palladium

Palladium is used widely in precious metals, jewelry, electronics, and even dentistry. Yet it’s the correlation between how it traded when China last injected massive amounts of monetary stimulus that has some thinking now is the time to buy it again.

After all, billionaire David Tepper commented that following China’s recent bazooka-like quantitative support, it is time to buy everything China, so what about Palladium that rose last time it did so. Let’s find out.

Why Look at Palladium Now?

As a precious metal that is part of the platinum group on the periodic table, it is found alongside other platinum group metals in mineral deposits and one of the most expensive metals in the world.

Even with a price decline having occurred over the past couple of years, palladium commands a spot price of just over $1,000 per ounce yet some worldly events now in Asian markets may be a sign that it’s time to revisit a purchase.

Though much less high-profile than precious metals like platinum, gold or silver, palladium may present a unique value proposition right now. Palladium’s main industrial use has historically been as an autocatalyst in vehicles. As a result, the metal’s price plunged last year when headwinds hit the electric vehicle market.

Now it seems palladium may well be oversold. While EVs are expected to steadily gain market share, a lack of charging infrastructure and high price tags for electric models will likely make the transition away from internal combustion engines at a much slower pace than originally expected.

In other news related to the precious metal, a compound made of palladium and selenium has recently been found to substantially increase the efficiency of solar panels. This discovery may well give palladium a new lease on life and supplement falling demand from the auto industry over time.

Palladium also has the potential to be used more broadly in hydrogen fuel cells that feature in vehicles. While current EVs have little use for palladium, those powered by hydrogen need the metal to support the electrolysis process that converts water molecules into hydrogen and oxygen. Hydrogen cells are also expected to find uses in everything from trains to power generation, potentially creating long-term support for palladium.

In addition, palladium is currently experiencing a large market deficit. For 2024, analysts expect supply of platinum to fall short of global demand by nearly 600,000 ounces, a deficit trend that palladium will likely more or less follow.

Though future years are expected to see smaller deficits and eventual surpluses, the mismatch between supply and demand may support a recovery of spot prices in the short term.

Palladium Mining Stocks

One approach for adding palladium exposure to a portfolio is to buy shares of mining companies that extract it. Because palladium is a member of the platinum group metals that are often mined together, it’s not possible to get pure exposure to palladium with mining stocks.

One of the leading companies engaged in producing platinum group metals is Anglo American Platinum (OTC:ANGPY). In the first half of 2024 alone, the company produced about 1.78 million ounces of platinum group metals overall, a 5% increase from the prior year.

Another industry titan is Sibanye Stillwater (NYSE:SBSW), a precious metals producer headquartered in South Africa with mines in both Africa and the United States. SBSW produces not only platinum group metals but also gold and silver.

As such, the company’s exposure to palladium is somewhat diluted. Due in large part to the decline of platinum group metals, shares of this mining company currently appear to be bottoming out. The company may be poised for a rebound as demand improves, creating a possible upside opportunity for risk-tolerant investors.

Last but not least is Ivanhoe Mines (TSE:IVN), a Canadian mining company that explores and develops precious metal mines in Africa.

The company is currently developing its Platreef project, which may well prove to be a massive source of platinum, palladium, gold, silver, copper and other precious metals.

Ivanhoe, which owns 64% of the project, estimates that Platreef could eventually become both one of the world’s largest and most cost-efficient sources of platinum group metals.

Palladium ETFs

Investors may also want to consider physical palladium ETFs for more direct exposure to the price of the precious metal.

One of the top funds in this space is the Aberdeen Physical Palladium Shares ETF (PALL). With an expense ratio of 0.6% and a large presence in physical palladium, PALL is a relatively affordable and reliable way to easily add palladium exposure to a portfolio.

Another ETF with similar characteristics is the iShares Physical Palladium fund (SPDM). This fund is even more affordable than PALL, carrying an expense ratio of just 0.2%.

SPDM may also be suitable for investors with less capital to work with because the fund tracks comparatively smaller amounts of palladium than PALL and therefore carries a lower share price.

Investing in ETFs comes with numerous advantages. To begin with, these funds can easily be traded like stocks, giving them a high degree of liquidity. ETFs that track palladium itself also avoid the business risks that come with actual mining companies, creating a closer link between the spot price of palladium and the returns an investor can expect to see.

Physical Palladium

As with any other precious metal, investors can also choose to own physical palladium. While official coins aren’t minted in palladium, many private bullion sellers offer small palladium bars. These bars are most often made in 1-ounce weights, though smaller bars can be found for investors looking for lower entry costs.

While holding physical palladium offers protection from stock market volatility, fees and the other drawbacks of exchange-traded investments, it also comes with its own set of challenges.

For starters, palladium’s high spot price may make buying bars of it too expensive for many ordinary investors. Liquidity is another issue because palladium isn’t as widely bought as more common precious metals like gold and silver.

Palladium Futures

A final option for investors is to buy futures contracts on palladium. Like most commodities, palladium trades widely on futures markets.

Futures contracts are high-risk derivatives that are best suited to experienced and risk-seeking traders. This is especially true in the case of leveraged futures contracts, which can produce outsized losses for investors if the price of the underlying asset moves in the wrong direction.

Though palladium looks like a commodity that could be due for a recovery, ordinary market volatility still makes futures trading a deeply speculative proposition.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.