How to Invest in Palladium
Palladium is often overshadowed by the other, more famous items in the precious metal group despite its importance to the modern economy. Palladium is a popular metal for industrial uses as the product is generally cheaper than platinum while at the same time being softer while still being ductile and resistant to rust. Due to this resistance, the metal has become a popular choice for autocatalysts in order to help carmarkets keep a lid on harmful emissions. In this same vein, the metal has become a popular choice for dentists seeking a soft metal for dental crowns, or when made radioactive, a potential treatment option for those suffering from cancer.
Palladium has appeal as an investable asset for several reasons. First, if investors continue to lose faith in the fiat currencies and the U.S. dollar in particular, demand for palladium could rise as an alternative. Palladium also has appeal as an inflation hedge or as a way to play increasing demand for the car industry since so much of the product goes towards autocatalysts. Thanks to this heavy industrial demand, prices of the metal are often heavily correlated to automobile production and usage making the metal increasingly dependent on emerging markets.
Investors seeking exposure to palladium have a multitude of options. In addition to buying futures contracts on palladium or purchasing and holding the physical metal in the form of coins or bars, there are a number of ETF and equity options available as well. Investors can purchase stocks or ETFs of companies that mine the metal as the primary way to achieve equity exposure. Lastly, investors also have the option of buying palladium ETFs, either ones that track the futures for the metal or those that physically hold the product in secure vaults.
Ways to Invest in Palladium
There are 4 ways to invest in Palladium: ETFs, Futures, Physical, and Stocks. Click on the tabs below to learn more about each alternative.
What are Palladium ETFs?
Exchange-traded funds can be an efficient way to access palladium. In the U.S., the primary palladium ETF option is the ETFS Physical Palladium Shares (PALL), a fund whose underlying holdings consist of physical palladium stored in secure vaults. As such, investors in PALL achieve exposure to movements in spot prices of palladium, without introducing complexities associated with futures contracts.
There are some other ETFs that also offer exposure to palladium; this precious metal receives smaller allocations in the Physical White Metal Basket Shares (WITE), along with silver and platinum. Palladium is also represented in the ETFS Physical Precious Metal Basket Share (GLTR).
International investors may have more ETF options for gaining exposure to palladium, including leveraged and inverse products.
What are Palladium Futures?
Palladium futures are traded on the NYMEX under the symbol PA, with each contract representing 100 troy ounces of the metal and priced in U.S. dollars and cents per troy ounce. Trading is conducted over 15 months beginning with the current month and the next two calendar months before moving into the quarterly cycle of March, June, September, and December.
Palladium futures are for physical delivery, and delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.
Palladium delivered under NYMEX futures contracts must be a minimum of 99.95% pure.
Resources for palladium futures include:
How to Buy Physical Palladium
Exposure to physical palladium is possible through buying and storing palladium coins or bars or the metal. Because this precious metal has a very high value-to-weight ratio, it is possible to store a significant value of palladium in a relatively small space. However, this also requires secure storage arrangements, which may introduce logistical complications.
There are a number of options for investors looking to purchase physical palladium, including various web sites and precious metals dealers. Another option for those looking to establish physical exposure is a physically-backed ETF, PALL. Because the underlying holdings consist of the precious metal, shares of this fund will exhibit near perfect correlation to spot palladium prices. For a relatively minor expense ratio, investors can sidestep any logistical complications related to storage requirements.
How to Buy Palladium Stocks
For those looking to invest in palladium, one option is to buy stock in companies engaged in the discovery and extraction of the metal. Because profitability of these companies depends on the market price of palladium, these stocks can exhibit a strong positive correlation to movements in spot prices.
Unfortunately, there are few mining companies whose operations focus exclusively on palladium; many companies engaged in extracting palladium also generate revenues through sales of platinum, gold, and other precious and industrial metals. Companies that derive substantial portions of revenue from palladium include:
- North American Palladium (PAL)
- Anglo Platinum (AMS.SJ)
- Platinum Group Metals Ltd (PTM.CN)
- Northam Platinum (NHM.SJ)
- Stillwater Mining Company (SWC)
For a more complete list of mining companies with exposure to palladium, see the holdings of the First Trust ISE Global Platinum Index Fund
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