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Updated 13:26 28/02/21

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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 major 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.
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PAMP 10 Gram Palladium Bar

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from £803.28

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PAMP 1 Gram Palladium Bar

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from £96.48

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PAMP 2.5 Gram Palladium Bar

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from £222.12

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PAMP 5 Gram Palladium Bar

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from £410.04

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The palladium price rally has continued throughout the year, continuing to set new records. At the time of writing, this is still ongoing, with a new palladium high of $1,937.50 per ounce. This means palladium has now also beaten the all-time gold price high of $1,896.50. With records like that, palladium has unsurprisingly begun to receive further attention from investors. Which is better though; gold or palladium?
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Is palladium a good investment?

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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.

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 12 months.
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PAMP 100 Gram Palladium Bar

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from £7,864.80

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PAMP 1oz Palladium Bar

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from £2,362.80

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PAMP 20 Gram Palladium Bar

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from £1,592.40

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PAMP 50 Gram Palladium Bar

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from £3,912

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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.

With a high price already, the question over whether palladium is a good investment turns to how sustainable that price is. Our palladium price forecast for 2020 can be found below, but there is one main risk to palladium that we will discuss first.

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Chart showing the performance of palladium since 1991. .

A look at the price chart above shows two main spikes for the palladium price in recent history. The first took place between 1997 to 2001, the second started in 2009 and is still ongoing. In both instances, platinum was the preferred metal of choice for catalytic converters, but prices had spiked to a point in which manufacturers instead turned to palladium. When palladium then became too expensive, they turned back to platinum. The two metals have a negative correlation; platinum prices climb while palladium drops and vice versa.

The risk then for palladium is that manufacturers have switched to platinum before when palladium prices became too high, and switching back could be necessary if the price gulf between the two continues to grow. Converting production lines is very expensive however and would take time to implement, so manufacturers will often simply accept the higher cost of palladium. Until it becomes financially viable/essential to switch back to platinum, palladium will likely stay at a price far above gold, and platinum far below.

If a switch happens however, then the price drop for palladium could be significant. Considering catalytic converters account for 80% of the demand, then if that disappears prices would drop accordingly. Due to the huge growth in demand for the metal as an investment asset in the past decade however, this would likely mitigate the drop somewhat, but could still see it far below the recent highs.
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Palladium price forecast

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With all of the knowledge above, here is our palladium price forecast for 2020. Please note that we always recommend customers gather information from a wide variety of sources and build their own opinion. A forecast will always be just that, and no one can be certain of what will happen in the future.

Considering the current price of $1,937.50 per ounce, many analysts see $2,000 as an easily achievable target by the start of 2020. After a small drop-off between 2014 – 2016, there has been consistent growth for palladium in the past four years: palladium was up 45% in 2016, up 60% in 2017, up 15% in 2018, and up 53.37% in 2019. Even a modest increase of another 10% for 2020 would see palladium at $2130. If we take the average gain for the past four years (43%) then palladium could even hit $2,709 by the end of next year.

Supporting this are increasingly stricter pollution laws, which mean manufacturers are having to increase the amount of palladium used in each catalytic converter. China in particular have said that, by 2020, all cars need to contain up to 30% more palladium to reduce emissions. This means demand for palladium will likely grow, while supply continues to dwindle. The deficit to supply is expected to continue in 2020 and into 2021, with fresh economic trouble hitting South Africa causing widespread power outages and shutting down several mining facilities that produce palladium.

The risk for palladium is that platinum is (at the time of writing) $1,000 per ounce cheaper. If this price difference is sustained for much longer, manufacturers will be forced to consider switching back to platinum. This would take between one and two years however, so the impact of a switch would be slow; with both metals spiking initially and then gradually rising/falling accordingly.

In the long term it should also be noted that palladium's use in catalytic converters does appear to have a deadline. Current hybrid cars still require a catalytic converter to process the fumes produced by the petrol component of the engine. As the world looks to environmental sustainability however - and cars become fully electric - catalytic converters will no longer be needed, and unless demand is replaced in some way then palladium will once again become oversupplied and the price drop.

In the short term however, the outlook for palladium is promising, and it seems that only the arrival of some unknown factor could stop palladium in its tracks.