How to Trade Palladium Online in 2023
The precious metal palladium has attracted a lot of attention from investors recently, with its price hitting a record high at the beginning of March 2022 due to the ongoing conflict between Russia and Ukraine – the former being one of the world’s largest producers of palladium.
But what is palladium? What are the different ways of investing in palladium? Is palladium a good investment? In this article, we will answer all these questions, demonstrate how to trade palladium online and much more!
Table of Contents
Palladium: An Introduction
Palladium is a silvery-white, rare precious metal which was discovered in 1803 by an English chemist named William Hyde Wollaston. Palladium, like platinum, forms part of the ‘platinum group’ of metals and, at room temperature, it can absorb 900 times more hydrogen than its own volume.
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Where is palladium found?
Deposits of palladium, like other platinum group metals, are rare and it is mostly extracted as a byproduct in the mining of other metals, such as platinum and nickel.
The countries which produce the most palladium are:
The United States of America
In 2020, these five countries accounted for more than 98% of the world’s total palladium production, with Russia and South Africa accounting for more than 75% between them, making them the world’s largest producers of palladium.
Russia alone produced 43% of the total figure, which explains why palladium prices have spiked since the conflict between Russia and Ukraine began.
Whilst Russia may have out-produced South Africa in 2020, the latter has the largest-known reserves of palladium in the world.
Palladium: What are its Uses?
Other than being a vehicle for investment, palladium has uses in production, including in the following industries:
- The automobile industry
- Dental industry
Let’s briefly look at each of these uses in order to better understand why people choose to trade palladium.
Currently, thanks to its remarkable chemical properties, the most popular use of palladium is in the production of catalytic converters for petrol motor vehicles, as the precious metal can trap carbon and oxidise it before it is released into the air as a pollutant.
Roughly 80% of the world’s palladium used each year is accounted for by the automobile industry. However, it is no secret that the industry is slowly transitioning to electric cars which do not utilise palladium in production, meaning that, in the future, we could see a slow-down in demand for palladium and, consequently, a drop in its price.
Nevertheless, transitioning the entire world to electric vehicles will take time and, furthermore, palladium is still used in hybrid vehicles, which is a source of growing demand. Therefore, in the near future, palladium trading may still be an option to consider.
Multi-layer ceramic capacitors help control current flow in electrical circuits and either palladium or silver alloys are used in the construction of these capacitors. Hybrid integrated circuits and cladding materials also include the use of palladium.
Palladium can also be used in the dental industry in the production of dental inlays, crowns and bridges.
Thanks to its bright white appearance, palladium has become increasingly popular in the jewellery industry as an alternative to platinum.
Whilst demand for palladium has increased in recent years, supply has remained relatively constricted. The chart below shows the shortage of palladium supply between 2011 and 2019.
Is Palladium a Good Investment?
Here are some of the reasons why people might choose to invest in palladium:
In the next section, we will look at the evolution of the price of palladium in recent years.
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As we can see from the palladium price chart above, the price of palladium has increased enormously in recent years. In the five years between 2016 and 2020, the price of palladium rose by more than 330%, before dropping by 22.5% in 2021 during the global economic recovery from Covid-19. At the time of writing (23 March 2022) palladium is currently up more than 30% year to date.
Let’s look at some of the key moments in the price of palladium:
So why the rapid growth in palladium prices? We can highlight several key reasons:
- Electricity shortages have hampered South African production in recent times
- Tighter emission regulations are pushing the automobile industry to use more palladium
- A decrease in sales of diesel cars, which use platinum instead of palladium in their catalytic converters, and an increase in petrol-run cars which favour palladium
- After August 2018, hedge funds increased their forecasts that palladium prices will rise in the long-term
Although, at present, the price of palladium is below its pre-coronavirus level, the long-term uptrend is clear for all to see. Will the price of palladium continue to rise? And is this a good time to invest in palladium?
Invest in Palladium: How To
So, now we have seen palladium’s impressive recent performance in the markets, how can you invest in palladium?
There are several different ways in which it is possible to gain exposure to palladium, which we can split into two categories: palladium investing and palladium trading.
Palladium investing involves buying the physical commodity or buying shares in companies which operate in the palladium industry. In order to trade palladium, traders can speculate on the precious metal’s price by using financial derivative products.
These are some of the most common methods of trading and investing in palladium, each of which we will look at in more detail in the following sections:
|How to Trade or Invest in Palladium|
|Buy palladium bars|
|Invest in palladium stocks|
|Trade palladium CFDs|
|Palladium futures contracts|
Buy Palladium Bars
The first option for palladium investing is probably the most intuitive and direct way of investing in palladium. Investors can buy palladium bars, coins or jewellery in the hope that the price of palladium will rise in the future so the palladium bars can be sold for a profit.
However, whilst this may sound straightforward, investing in palladium bars does have several major drawbacks.
- As we have seen, the price per ounce of palladium is expensive and if you choose to buy palladium bars, you do not have much flexibility in choosing its exact weight. This could greatly increase the cost of your palladium investment.
- Buying and selling physical palladium bars often incurs a seller’s commission, which can be between 3-5% for both buying and selling.
- You must find a secure place to store your palladium bars
- You may need to pay for insurance
So, investing in palladium bars, whilst seemingly straightforward on the surface, comes with a potentially more costly initial investment and logistical issues regarding storage. What are some of the other options for trading and investing in palladium?
Invest in Palladium Stocks
The next opportunity to invest in palladium is through buying shares in companies which operate in the palladium industry. These companies benefit from rising palladium prices, meaning that you too, as a shareholder, would also stand to benefit. Here are some of the advantages of investing in palladium stocks:
- You may benefit from receiving additional income through dividend payments, depending on the palladium stocks you invest in.
- Most mining companies do not mine a single metal. Therefore, by investing in palladium stocks, you may gain exposure to other precious metals such as gold and silver; this offers a good opportunity for portfolio diversification.
- Company shares are much more liquid than palladium bars. In other words, they can be bought and sold with more ease and in line with their current market value.
- Depending on the number of shares you wish to purchase, buying palladium stocks usually requires a smaller initial investment compared to buying the physical commodity.
However, it is important to bear in mind that buying palladium stocks does not give you direct exposure to palladium.
Whilst there may be some correlation between the share price of companies involved in the palladium industry and the metal itself, there are many other factors which can influence a company’s share price.
Below is the price chart of Vale SA, a Brazilian mining company which produces palladium.
Palladium Futures Contracts
So far, we have looked at two options for palladium investing, both of which involve taking ownership of an asset, whether palladium bars or the shares of a palladium producing company.
What about those who would prefer to trade palladium?
There are a number of financial derivative products which allow traders to speculate on the prices of commodities and other assets without ever taking ownership of the underlying asset itself. We will look at two of these, the first being palladium futures contracts.
Palladium futures contracts represent an agreement between two parties, buyer and seller, to exchange palladium at a fixed price on a predetermined date in the future. Futures contracts can be bought and sold on futures exchanges, meaning that traders can speculate on palladium prices, in both directions, without ever actually taking ownership of the commodity itself.
Whilst palladium futures provide a way for traders to trade palladium without owning the precious metal, there are a couple of drawbacks.
- Due to futures contracts having an expiry date, there is a limit as to how long traders can hold their position. This makes futures contracts inappropriate for longer-term speculation
- The price of a futures contract is influenced by how long it has until expiration, meaning that traders must take this into consideration as well as palladium prices when trading palladium futures contracts.
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The final option to trade palladium we will look at are Contracts for Difference (CFDs).
Like palladium futures, palladium CFDs allow traders to speculate on both rising and falling palladium prices without ever taking ownership of the physical asset. A CFD is a contract between two parties which agrees to exchange the difference in price of an underlying asset between when the contract is opened to when it is closed by the trader.
Unlike palladium futures, palladium CFDs have no expiry date, meaning that traders can hold their position open for as long as they wish, subject to margin requirements. Furthermore, traders benefit from the use of leverage, allowing them to access larger position sizes for a fraction of the cost.
However, when trading palladium CFDs, traders need to be aware of swap fees, which are charged on positions held open overnight.
Trading Palladium Online
Now that you know what palladium is, where it is produced and some of the ways you can gain exposure to the precious metal, how can you trade palladium CFDs online? You can get started with these five simple steps:
- Open a Trade.MT5 account with Admirals
- Download and open the MetaTrader 5 trading platform
- Press Control + U to open the symbols window. Search for palladium and select ‘Show Symbol’ to add palladium to the Market Watch window on the left of the screen
- Find palladium in Market Watch, right-click and select ‘Chart Window’ to open a palladium price chart
- Press ‘New Order’ at the top of the screen to open an order window, like the one shown below. Here, you can fill out the desired size of your order and click Buy or Sell to send the order to the market
Investing in Palladium: Conclusion
The huge growth in demand for this precious metal and relatively limited supply in recent years pushed the price of palladium above $3,000 a troy ounce in 2022, before settling around the $2,500 level at the time of writing. This means palladium is significantly more expensive than gold and roughly two and a half times more expensive than platinum.
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Frequently Asked Questions
What is palladium and why should I consider investing in it?
Palladium is a rare precious metal primarily used in catalytic converters for vehicles and various industrial applications. It's also seen as a store of value like gold and silver. Investing in palladium can provide diversification to your investment portfolio and potentially offer a hedge against economic uncertainties. Its demand from the automotive and technology sectors can influence its price.
How can I invest in palladium?
There are a few ways to invest in palladium:
- Physical Palladium: You can purchase physical palladium in the form of bars or coins from reputable dealers. Storing and securing physical palladium is essential.
- Palladium ETFs: Exchange-Traded Funds (ETFs) that track the price of palladium are available. These offer a more accessible way to invest without owning physical palladium.
- Palladium Stocks: Some mining companies are involved in palladium extraction. Investing in these stocks can give you exposure to the palladium market.
- Futures and Options: Advanced investors can trade palladium futures and options contracts on commodities exchanges.
What are the risks associated with palladium investment?
While palladium investment can be profitable, it comes with risks:
- Price Volatility: Palladium prices can be highly volatile due to factors like supply-demand imbalances and economic conditions.
- Industrial Demand: The majority of palladium demand comes from industrial sectors, particularly automotive. Economic downturns could impact demand.
- Regulatory Changes: Changes in emission regulations or technological advancements could affect the demand for palladium in catalytic converters.
- Storage and Security: If investing in physical palladium, proper storage and security measures are crucial to prevent theft or damage.
Remember that before investing in palladium or any other financial instrument, it's essential to conduct thorough research, consider your risk tolerance, and, if necessary, consult with a financial advisor.
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