Palladium - Investor Alert!

Most of us are familiar with Platinum. Platinum is the most expensive precious metal, it is used in fine jewelry and during the inflationary times of 1980, Platinum reached a high of $1100.00 an ounce. Platinum's primary use is in catalytic converters for clean air emissions in the auto industry.

Palladium is also used in jewelry, however its primary use is also in catalytic converters for clean air emissions for the auto industry. Both Platinum and Palladium are very rare. Platinum is 15 times more rare than Gold and Palladium is even more rare than Platinum.

The Auto industry is very competitive and with the U.S. dollar being low and heavy foreign competition, every penny saved is important to the overall cost of the automobile.

As of this writing, Platinum sells for $900.00 an ounce and Palladium sells for $190.00 an ounce. Auto manufactures will switch to catalytic converters made with Palladium instead of Platinum because of the cost. Platinum and Palladium do the same job; in fact, Palladium is actually better because it is more heat tolerant than Platinum.

Analyze these charts:

Historical Platinum Chart 1972 - 2005

Historical Platinum Chart


Historical Palladium Chart 1976 - 2005

Historical Palladium Chart


The price of Platinum in 1996 was approx. $430.00 an ounce and the price of Palladium was approx. $160.00 an ounce. It was at that time that automakers switched to catalytic converters made with Palladium, sending the price of Palladium sky-rocketing to $1100.00 an ounce, exceeding the price of Platinum at $600.00 an ounce.

Also, Platinum and Palladium are small markets. South Africa and Russia are the major producers. Russia accounts for 50% of the world Palladium production, and in the past Russia has halted shipments of Palladium to raise prices. With Palladium prices at 23-year lows it wouldn't surprise me to see Russia stop shipments again.

When Palladium prices were increasing rapidly Ford Motor Company contracted to purchase 1.8 million ounces of Palladium at record prices of $1100.00 an ounce. In fact, Ford paid a premium over and above the $1100.00 price. When prices started falling heavily, Ford was trapped and in huge financial trouble. It took three years for Ford to sell off and use its Palladium and now prices are back to $190.00.

The biggest demand for Palladium may come from China. China is the fastest growing auto industry in the world. Car sales jumped 50% last year alone, and to remain competitive every penny is vital. That is why catalytic converters made using Palladium will be in great demand. Also, with the Olympics coming to China in 2008 there are air pollution standards that must be maintained.

There is a huge demand for Palladium and Russian government controls supplies. With the auto industry switching to Palladium over Platinum and China's auto industry booming, it will not take long for supplies of Palladium to shrink. One auto manufacturer intends to increase its Palladium consumption by 24% in 2006 and by as much as 56% in 2008.

The U.S. Clean Air Act requirements are increasing the demand for Palladium in new cars. Although China is manufacturing cars for domestic use, the belief is that soon China will want to compete in the U.S. and European markets which will mandate that Chinese automobiles use more Palladium.

The U.S. Defense Departments logistical stockpiles of Palladium are being sold and the auto industry has depleted its own stockpile. The last wildcard for supply is the Russian government. I can certainly see why the Russian government would not want to sell Palladium at 23-year lows; however, the last time Palladium prices were this low and the auto industry switched to Palladium prices sky-rocked to $1100.00 an ounce.

I believe Palladium prices will rise substantially. Prices are at 23-year lows and there is heavy support at $180.00. This is a strong entry level, and I would look to purchase physical Palladium at these low prices. This is an explosive market and can take off at any time, especially with the Russian government controlling prices.

Prediction

1 year $450.00 Palladium

3 years $1100.00 Palladium

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