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Palladium vs gold investment

Gold and silver are often the primary choice for investors looking to buy precious metals, but palladium has become a rival to gold in recent years.

Despite being a relative unknown compared to gold, palladium actually overtook gold as the most expensive precious metal in January 2019 - the first time palladium has achieved this. After hitting a record in March 2022 as Russia invaded Ukraine, palladium has suffered a severe sell-off, falling back below gold to match platinum price levels.

Beyond it's price however, there are other things to consider with a palladium vs a gold investment. Palladium does have VAT to consider for example. Although palladium can rise in price quite significantly, the additional 20% outlay does mean a much higher spread before you break even. As palladium is rarer to mine, and produced in far lower numbers than gold and silver bullion, the premiums also tend to be higher.

Is palladium a good investment?

Knowing more about palladium is key in determining whether or not it is a good investment.

Part of the platinum group metals (PMGs), palladium is a durable white metal. Palladium is used in electronics, and is sometimes used for gold alloys, making white gold for jewellery, or even used as the primary metal in some cases.

The biggest use of palladium however is by the automotive industry for catalytic converters. These help reduce the harmful emissions produced by petrol-fuelled engines in cars, and feature about 3-7 grams of palladium in each unit. This accounts for about 86% of mined palladium, and represents a huge majority of demand for one precious metal, but is a key driver behind palladium's price rally.

Supply and demand are the reason for palladium's ongoing price rally since 2009. Supplies have struggled to keep up with the huge demand for palladium in catalytic converters. Palladium is rarer than gold, but making matters worse is the fact that 40% of palladium is mined in South Africa, and 44% in Russia, with the rest coming from the US and Canada. There is evidence of dwindling supplies in Russia, although they are notoriously secretive regarding the exact amounts of palladium produced. Labour strikes and geopolitical troubles have also caused production issues in South Africa.

High demand and low supply make palladium very scarce, far scarcer than gold, and this has been key in pushing palladium past gold in the past few years.

All physical metals have the potential to be a good investment. Having a tangible asset offers you the ultimate control over your wealth. As with gold, palladium will often act as a hedge; with prices moving inversely to the Dollar. When economic turmoil increases, demand will turn to physical assets like palladium over paper-backed fiat currencies.

Palladium's huge industrial demand does leave it more reliant on the overall global economy. A healthy economy producing lots of cars helps palladium prices rise; a struggling economy with lower car production will likely see prices fall.

251121 Palladium Chart

The chart above shows the price of palladium in the past 10 years. The metal saw significant growth from 2016, up to a peak of over £2,500 per ounce in March 2022. Russia is one of the main producers of palladium, and its invasion of Ukraine saw the price climb significantly and quickly. While Russia faced many sanctions for the invasion, palladium was not one of the metals sanctioned, and demand is expected to continue to fall as the world transitions away from combustion engines.

Palladium price forecast

As with any price forecast, it is important to note that no can say for sure how palladium will perform in the future. Global economic events can quickly change the way the price is moving, or accelerate any rises or falls.

The key driver for the palladium price forecast in 2024 and beyond will be the supply chain issues plaguing the car industry. Until car production returns to pre-pandemic levels in a sustained manner, demand for palladium will remain low, easing supply pressure and keeping the price depressed. This could of course present a buying opportunity for investors who have been keen to buy this metal but not while it's been at record highs.

The adoption of electric vehicles could also pose a longer term risk for palladium in the future. Without the need for catalytic converters, palladium will need to be adopted in some other part of the car production chain, or in other electronics in order to maintain demand in the years ahead as combustion engines slowly fall out of fashion.

Geopolitical supply could still provide some price strength for palladium. Russia's invasion of Ukraine continues nearly two years on, and further escalation could bring further sanctions, one of which could be palladium. The loss of Russia's supply would certainly help boost the palladium price.

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