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By: Eric Pozniak
April 3rd, 2012
I would like to share with you some very interesting information about, in my opinion, an extremely undervalued precious metal. While most of the investment world seems to be infatuated with gold and silver, I believe palladium is poised for a major move over the next 6-8 months. Many people have heard of palladium but may not realize what it is used for and why we appear to be entering into a major shift of the supply and demand fundamentals of this very precious metal.
Palladium is a rare and lustrous silvery-white metal and is part of 5 other elements referred to as the Platinum Group Metals (PGMs). While these metals share similar chemical qualities, palladium has the lowest melting point and is the least dense. Palladium is used in many high tech applications but more then half of its supply is used in catalytic converters for automobiles. Palladium (and platinum) converts up to 90% of harmful gas from auto exhaust to less harmful substances. Ore deposits of palladium and other PGMs are rare. The ever growing uses for palladium and limited supply sources are beginning to draw considerable investment interest.
According to the US Geological Survey, Russia is the source of almost 45% of the metal with South Africa a close second. Canada and the United States supply almost all the remainder.
During the 1970s and 1980s Russia had accumulated a significant stockpile of this precious metal under Soviet rule. While the size of this stockpile is a state secret, most analysts believe the Russian stockpiles are nearly depleted. In early 2001, the mere “rumor” that the Russian stockpiles were near depletion sent palladium soaring to almost $1100 per ounce. Today Palladium is trading around $600.
The mining problems in South Africa are well documented. Political struggles, striking miners, and insufficient power have hampered palladium production. The ongoing debate of nationalizing mining operations has deterred new capital investment. There is no reason to believe the current situation in South Africa will improve anytime soon.
The driving force behind the increase for Palladium is coming from improved conditions as the automobile industry in the U.S. and Europe continue to recover. The real surge in automobile sales is coming from the newly emerging economics of China, India, Brazil, Eastern Europe and Russia. As their economies grow so does a new middle class with a healthy appetite for their first (or second) car. Industry experts forecast that the annual car build rate will top over 100 million units per year by 2020. The emerging economies alone have the wherewithal and growing income to support this surge. In the near term, according to CNBC yesterday, small car sales are expected to sky rocket based on higher gas prices. Ford, General Motors, and Chrysler just reported robust sales for the month of March. This is good news for palladium as we enter spring and the summer, arguably the best time of the year for auto sales.
When speaking of demand, one must not overlook the increase of investment demand through the purchase of physical palladium and the newly created Palladium Exchange Trade Fund (ETF). According to data compiled by Bloomberg, holdings in palladium-backed ETF’s rose 14% this year, the best quarter since the end of 2010. According to the median estimate of 11 analysts surveyed by Bloomberg, palladium will average $850 an ounce in the final 3 months of 2012, a whopping 31% higher than now.
According to Montana based Palladium miner Stillwater Mining Company, jewelry is the third largest source of demand for Palladium. This began in China about 5 years ago and has spread to the rest of the world based on affordability in relation to the high prices of gold and platinum. This trend is expected to continue especially as gold and platinum are looking to make new highs later this year.
Last year palladium was steadily pushing to new highs reaching almost $850. After the tragic earthquake, tsunami and nuclear disaster struck Japan, the Japanese auto industry came to a stand still bringing palladium down as low as $550. Car building is once again beginning to surge in the emerging markets while recovering in the developed world. With new mining and less above ground stockpiles not being able to keep up with expected demand, we may in fact be entering into a palladium deficit. Whether were talking about widgets, oil, or palladium, when the supply decreases and the demand increases you can expect higher prices. The question is how much higher…….that’
After waiting patiently for palladium to finally retreat back to my buying range, palladium near $650, in my humble opinion is a strong buy.
To see the archive of our last call in the palladium market back in July, 2010 when palladium rose from around $450 and rose to almost $800 click here: 2010 Rothman Palladium Call
If you’d like more information about how to get involved in the precious metals market, our latest call in the palladium market, or to speak with Eric Pozniak, please call Angela at (877) 239-7269 or email email@example.com and reference palladium recommendation.
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your current financial condition. Before investing, consider the investment objectives, risks, charges and expenses. The information contained on this page is only the opinion of Eric Pozniak and in no way is a guarantee of profits.