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In recent years, Palladium has stolen the spotlight from other precious metals, at times becoming the highest-priced metal on the market. What has historically driven palladium to new heights, and what might we expect in the future? Find out as you learn more about palladium’s foundational price drivers.
What Is Palladium?
Palladium is a shiny, silvery white metal. It’s 30 times more rare than gold and has a chemical composition similar to that of platinum. Mines in Canada, Russia, South Africa, and the United States produce the majority of the planet’s palladium, often as a byproduct of mining platinum or nickel. Worldwide, about 200 metric tons of palladium were mined in 2021
How Is Palladium Used?
As much as 85% of the world’s palladium supply goes into catalytic converters. Manufacturers—primarily in North America and China—equip vehicles with these emission-control devices to convert toxic pollutants into carbon dioxide and water vapor, which are less harmful to the environment.
Palladium is also used in jewelry, electronics, medical equipment, dental work, fuel cells, and hydrogen purification.
Why Are Palladium Prices So High?
Traditional Supply and Demand
Historically, the up-and-down price movements of palladium can often be traced to simple supply and demand. In general, demand refers to how many buyers desire a product. Supply refers to how much the market can offer to meet that demand. As demand for a product increases, prices rise.
Palladium prices have grown historically and skyrocketed over the last few years, with spikes in early 2020 and 2022. Even though the current price is lower than its all-time high, it still shows steady growth, with demand for palladium increasing every year. The recent drop from palladium’s historic high also may represent a buying opportunity.
One factor pushing palladium prices higher is growing demand in China. China’s technology and manufacturing sectors, despite the impact of COVID-19 slowdowns and lockdowns, still show long-term steady growth for palladium use.
With a slowing of global supply chains, the demand for palladium is currently growing faster than available supply, driving up the overall price of the precious metal.
For China and other countries to continue making products like catalytic converters and microchips, they will need more palladium. Although South Africa has been the leading producer of palladium worldwide, countries like Russia, Canada, and the United States are increasing production to help meet the growing demand.
When you add growing industrial demand to other economic factors like rising inflation, which may lead portfolio holders to explore hard assets, palladium stands to remain a steady force in the world of precious metals.
Performance of Stock Markets and Bonds
As with other precious metals, the broader economy plays a role in the overall performance of palladium. Though there is no guarantee that palladium prices will rise during a bearish market, they have historically joined other precious metals in being seen as a hedge against inflation and economic uncertainty.
Because of its often-inverse relationship to stock and bond markets, palladium can be a part of a healthy, diversified portfolio. To see if your portfolio is properly diversified, check out our diversification quiz.
Other Precious Metals Can Influence Palladium’s Price.
In some ways, palladium follows suit with other precious metals by showing gains during economic volatility. As Ben Bernanke, former chair of the Federal Reserve, once wrote, “A rise in the price of precious metals may be a signal that the economy is struggling. As a result, in times of either a crisis or inflation, many [portfolio holders] turn to gold, silver, or palladium to protect their principal.”
This does not mean, however, that all precious metals rise and fall at the same time or by the same amount. For example, in the last few years, palladium has been priced higher than gold for the first time in history. Though there are a number of possible explanations for this shift, one often given is the meteoric rise of material demand for palladium to make car parts, battery parts, and microchips.
Shifts in the Auto Manufacturing Industry
Auto manufacturing is central to the growing rise of palladium demand in recent years, particularly its use in catalytic converters and electric vehicles. As clean air standards continue to increase in countries like China, the growth will push “more palladium into every tailpipe in that country,” says R. Michael Jones, former CEO of mining company Platinum Group Metals Ltd.
Palladium’s trajectory has been similar to that of rhodium, another precious metal.
Like palladium, rhodium—another of the six metals in the platinum group—is commonly found in the catalytic converters of vehicles.
In 2020, the price of rhodium climbed to $11,500/oz. in March before dropping to $2,750/oz. in early April and then rebounding somewhat to $4,200/oz. in mid-May. The roller coaster of rhodium’s price aligns with the price activity of palladium because both metals are used heavily in the automotive sector. But as with palladium, demand for rhodium is expected to rebound while supply continues to be constrained because of recent economic calamity.
Currently, the price of palladium is still most affected by the auto industry, with a continual increase in demand.
It’s somewhat of a well-established trend: “Precious metals used in small quantities by the auto industry have a history of price spikes when demand outstrips supply,” Bloomberg notes.
The Future of Palladium
Palladium shows no signs of slowing down, according to economist Edward Gardner. “Palladium prices should remain historically high through 2023–24, as usable stocks continue to dwindle,” says Gardner.
Given the growing demand of palladium in manufacturing, you may wish to consider palladium as part of your precious metals portfolio.
You have many options when it comes to precious metals. Call U.S. Money Reserve to learn more about palladium, along with gold, silver, and platinum.