Palladium Investment Guide: From Basic Properties to Market Trend Analysis

What is Palladium? The Most Volatile Precious Metal

Palladium belongs to the category of precious metals, characterized by stable properties, high hardness, and expensive prices. As a more volatile commodity within the precious metals, palladium holds significant importance in industrial applications and investment fields.

Palladium is mainly used in the automotive industry, electronics manufacturing, dentistry, and metal alloys. The commonly seen white K-gold on the market is actually an alloy of platinum and palladium. Unlike similar-looking platinum, palladium has slightly higher hardness, and there are clear differences in cost and price.

In 1803, British chemists first discovered palladium in platinum ore. Its name derives from the asteroid Pallas, which was named in honor of the ancient Greek goddess of wisdom.

Currently, the market price ranking is: Gold > Palladium > Platinum. The popularity of palladium investment is largely due to its high volatility, which creates more profit opportunities for investors.

Strong Demand for Palladium, Automotive Applications as Key Driver

According to industry statistics, 80%-85% of palladium’s application is in the automotive sector. Palladium is an excellent catalyst and is widely used in automotive catalytic converters, effectively reducing emissions from internal combustion engines.

With rapid development in the automotive industries of the US, China, and other countries, palladium demand continues to grow. Meanwhile, supply faces challenges—Russia and South Africa are the two largest palladium producers globally, but Russia’s reserves are declining, and South Africa’s output has fallen due to strikes and other factors. This supply-demand imbalance has become a key support for rising palladium prices.

Palladium Price Review in the Last 20 Years: Upward Trend Amid Fluctuations

From 2000 to 2015, palladium prices mostly followed the mean reversion principle of commodities, fluctuating around the balance point of production costs and market demand, generally staying within the $500-$600 range.

A major rally occurred between 2015 and 2016. During this period, liquidity was ample, and commodity prices generally rose. Palladium, with its smaller volume but strong industrial demand, benefited greatly, surging from around $400 to over $2,800 within a short period.

In 2019, the pandemic caused a rapid decline in palladium prices, nearly halving within three months. However, policy support helped palladium regain its peak. After 2022, with the start of interest rate hikes, palladium’s trend retreated.

2023 Palladium Market: Supply Gap Widens but Demand Remains Weak

In the first half of 2023, palladium experienced a sideways decline, continuing the previous adjustment trend.

Looking at the trend, in Q1, palladium prices fell from above $1,800 at the start of the year to around $1,400, then rebounded slightly to $1,645, but faced renewed pressure. Concerns about a US recession dampen future demand prospects, and without new positive catalysts, palladium struggles to rebound significantly.

Data from consulting firms show that 2023 will face the largest supply gap in years. The gap is expected to expand to 707,000 ounces, the largest since 2018. However, supply shortages do not necessarily push prices higher—weak demand remains a limiting factor.

The annual survey by the London Bullion Market Association (LBMA) predicts that the average price of palladium in 2023 will fall 14.3% compared to the previous year, to $1,809.80. Precious metals service providers forecast that palladium prices will continue to fluctuate within the $1,300 to $2,250 per ounce range.

Notably, high palladium prices are accelerating the substitution of platinum for palladium. Demand in chemical, electrical, and dental industries may further decline. Since about 40% of palladium supply comes from Russia, geopolitical risks cannot be ignored.

In What Aspects Does Palladium Have Investment Value?

Inflation Hedge Tool: Like gold, palladium is priced in USD. When the dollar depreciates, palladium prices tend to rise, providing asset protection for investors.

Clear Supply-Side Advantage: Growing demand coupled with limited supply creates a fundamental basis for price increases.

Smaller Market Size: Compared to gold and silver, the palladium market is smaller, with larger price swings, making it more attractive to investors.

High Correlation with Gold: Over the past decade, palladium’s trend has often aligned with gold, and its gains usually surpass those of gold.

Comparison of Palladium Investment Methods: Spot, Futures, and CFDs

Spot Palladium: Suitable for investors seeking physical investment experience, but carries wear and depreciation risks.

Futures Contracts: Traded on standardized exchanges, requiring higher capital thresholds and delivery management at expiration.

Contracts for Difference (CFD): Track the price movements of spot palladium without owning the physical metal, offering more flexible contract sizes and lower trading thresholds. CFDs provide 24/5 trading hours, two-way trading, margin trading, and adjustable leverage.

Compared to futures’ fixed specifications and complex account opening procedures, CFDs offer more convenient participation and a broader range of trading options.

Precautions for Beginners Investing in Palladium

Clarify Investment Goals: Are you aiming for profit with high returns, or hedging risk? Short-term trading or long-term holding? Different goals require different strategies.

Palladium vs. Platinum: Based on supply and demand fundamentals, palladium has higher demand and lower supply, making its fundamentals healthier. In terms of price volatility, palladium fluctuates more and offers higher profit potential, but platinum has better liquidity.

Monitor Overseas Markets: There are differences in fees and rules between Taiwan and international markets. Investors should stay updated on overseas trading market dynamics to make timely and correct decisions.

Risk Management: Margin trading involves leverage risks. Setting reasonable stop-loss and take-profit levels and controlling position sizes are essential risk management practices.

Technical Analysis References for Palladium Investment

Analyzing palladium trends can combine fundamental analysis with technical indicators. Common indicators include:

Moving Average Convergence Divergence (MACD): When the short-term line crosses below the long-term line, it signals a sell; the opposite crossover indicates a buy.

Relative Strength Index (RSI): Helps assess overbought or oversold conditions, aiding trading decisions.

Using these tools alongside market fundamentals allows investors to determine more scientifically the timing and risk levels of trades.

Summary

As a relatively volatile precious metal, palladium has investment value in inflation hedging and industrial demand support. The current market balances between supply shortages and weak demand. Investors should thoroughly understand its basic characteristics, supply-demand dynamics, and price trends, choose suitable investment tools and timing based on their risk tolerance, and implement proper risk management.