Palladium Investment Guide: From Basic Knowledge to Trading Strategies

What is Palladium?

Palladium is a precious metal characterized by stable properties, high hardness, expensive prices, and significant volatility. It is widely used in the automotive industry, electronics, dentistry, and metal alloys. Many white K gold jewelry pieces are actually alloys of palladium and platinum.

In 1803, British chemist William Wollaston discovered palladium in platinum ore. He dissolved natural platinum ore in aqua regia, added mercury cyanide solution to obtain a yellow liquid, then heated it with sulfur and borax, ultimately obtaining shiny metallic particles. The name “palladium” comes from the ancient Greek goddess of wisdom, Pallas Athena, hence the name Palladium.

Palladium and platinum have similar properties, but palladium is slightly harder than platinum. In terms of price, the current market trend is: Gold > Palladium > Platinum.

Current Supply and Demand of the Palladium Market

In its main applications, automotive use accounts for 80%-85% of palladium consumption. As an excellent catalyst, palladium is widely used in automotive catalytic converters to help reduce emissions from internal combustion engines. Therefore, the development of the automotive industry directly impacts the long-term demand outlook for palladium.

Currently, global palladium supply is tight. Russia is the largest producer worldwide, followed by South Africa, but both countries face production pressures: Russia’s stockpiles are decreasing, and South Africa’s output has declined due to strikes and other factors. Reduced supply with stable demand provides a foundation for supporting palladium prices.

Price Trends Over the Past 20 Years

Palladium has shown an overall upward trend with fluctuations over the past 20 years. From 2000 to 2015, palladium followed the mean reversion pattern typical of commodities, fluctuating around the production cost and market demand equilibrium, with trading ranges mostly between $177 and $1,100, often oscillating around $500-$600. Compared to other commodities, palladium exhibits notably higher volatility.

The period from 2015 to 2016 was a recent major upward wave. At that time, global central banks launched a new round of easing policies, flooding the market with liquidity and pushing up commodity prices. Palladium, being smaller in volume and supported by automotive demand, soared from over $400 to above $2,800 within a few years.

In 2019, the COVID-19 pandemic caused a rapid decline in palladium prices, with nearly 50% drop within three months. However, subsequent central bank stimulus policies pushed prices higher again. After entering the Federal Reserve’s rate hike cycle, palladium’s upward momentum stalled.

Analysis of 2023 and Future Trends

In the first half of 2023, palladium continued the correction after reaching a peak in 2022, showing a generally oscillating downward trend. Sanctions related to the Russia-Ukraine conflict once boosted palladium prices, but as geopolitical risks eased, palladium entered a downtrend. Expectations of a US recession weakened demand prospects, with no additional positive catalysts supporting prices.

According to data from consulting firms, 2023 will face the largest supply gap in years, but supply shortages may not significantly boost prices. Market analysts generally expect the average annual price of palladium to decline by 14.3% compared to the previous year. Precious metal service providers forecast that palladium prices will remain relatively high, which could accelerate platinum’s substitution of palladium, leading to further demand contraction in electrical, chemical, and dental sectors.

Why Invest in Palladium?

Hedge Against Inflation
Palladium is priced in USD; when the dollar depreciates, palladium prices tend to rise, making it a good asset for inflation hedging.

Healthy Supply and Demand Fundamentals
With the growth of the global automotive industry, palladium demand continues to increase. However, supply is constrained by mining disruptions and underinvestment, causing supply growth to lag behind demand growth. This structural imbalance enhances its investment value.

Small Market Size and High Volatility
Compared to gold and silver, the palladium market is smaller, with greater price swings, offering higher potential returns for investors.

High Correlation with Gold Trends
Over the past decade, palladium prices have generally tracked gold closely, often outperforming gold in percentage gains.

Comparison of Palladium Investment Methods

There are three main ways to invest in palladium: spot palladium, futures contracts, and Contracts for Difference (CFD).

Spot Palladium

• Trading Hours: During daily trading sessions
• Advantages: Physical asset ownership
• Disadvantages: Prone to wear and depreciation, limited liquidity

Futures Contracts

• Trading Hours: Exchange trading hours
• Features: Require margin deposits, have fixed contract specifications and expiration dates
• Advantages: Can be traded both long and short
• Disadvantages: Delivery date restrictions, need to close or roll over positions at expiry

Contracts for Difference (CFD)

• Trading Hours: 24/5 trading
• Features: Price follows spot palladium, investors do not own the physical metal
• Advantages: Low entry barriers, flexible lot sizes, two-way trading, no fixed expiry, leverage support, comprehensive risk management tools
• Disadvantages: Leverage risk involved

In terms of flexibility, CFDs offer greater autonomy compared to futures, with adjustable contract sizes and no forced delivery pressure.

Palladium vs. Platinum: How to Choose Investment?

Fundamentals: Palladium has higher demand and tighter supply, making its fundamentals healthier and more suitable for medium- to long-term investment.

Market Liquidity: Platinum has higher liquidity than palladium, making it easier to trade as a traditional monetary commodity.

Price Volatility: Palladium exhibits much larger price swings than platinum, attracting investors seeking higher returns.

Investment Tips for Beginners in Palladium

• Define Your Investment Goals: Are you aiming for profit, asset hedging, or long-term holding? Different goals require different strategies.

• Follow International Market Trends: Global market movements often lead local markets; timely tracking helps make better decisions.

• Learn Fundamental Analysis: Pay attention to automotive industry policies, central bank monetary policies, and geopolitical factors affecting palladium.

• Master Technical Analysis Tools: Moving averages, RSI, and other indicators can help identify buy and sell signals.

As a precious metal investment, palladium combines industrial and financial attributes. Understanding supply and demand dynamics, mastering trading tools, and setting clear investment plans are essential to seize opportunities in this volatile market.