Disclosure: Our content does not constitute financial advice. Speak to your financial advisor. We may earn money from companies reviewed. Learn more
There are no coins rarer than palladium in the world of precious metals investing, and palladium bullion is one of the most sought-after varieties in the world. In fact, in 2020, palladium-group metals saw an average rise in value of 18% on the year. Right now, the price gap between platinum and palladium is at an all-time high.
There are many reasons to invest in palladium, from diversification to portfolio growth. However, the current economic context provides the ideal entry point for investors looking to get started with this precious metal.
In today's market environment, chain-wide supply shortages brought on by the COVID-19 pandemic have ratcheted up demand. Now is a better time than ever to invest in these increasingly rare coins. But don't just take our word for it—check out our list of the top reasons to invest in palladium in 2021.
Palladium 101: What Is It?
Although gold is often assumed to be the most prized of the precious metals, palladium is the world's most valuable type of precious metal. This white metal is composed of unique and extremely rare chemical properties that make it a key industrial material, such as:
- Highly corrosion-resistant
- Low toxicity
- Melting point of 1,560 degrees
- Low density
- Does not react with oxygen
Thanks to its fascinating array of natrual properties, palladium is sometimes called “white gold” and is often used in industrial manufacturing and jewelry making. These days, palladium is used widely in the production of catalytic converters.
Why Is Palladium Suddenly So Valuable?
Since at least 2012, a supply shortage of palladium alloy has caused the per-ounce value of the metal to skyrocket. The chemical properties of palladium make it highly useful in controlling the output of pollution in motor vehicles, which has caused demand to increase from manufacturers trying to curb their carbon footprint.
Disruptions in mining operations due to the COVID-19 pandemic have only exacerbated palladium's supply issue. In 2021, for the tenth consecutive year, palladium supply is forecasted to fall short of demand. Currently, there is a market imbalance of roughly -400,000 metric ounces of palladium on the market, causing the price of the white metal to soar higher than even gold.
Our Top Reasons to Invest in Palladium
Below, we've listed our top reasons to invest in palladium in 2021, as well as our general palladium investment outlook in the near-to-medium term.
1. Environment Use Cases
All signs point to palladium holding long-term value due to its environmentally friendly qualities. Only trace amounts of palladium are absorbed into soils, usually in the range of 0.4 ppm which is low enough for organic life to tolerate. This is considerably lower than other platinum-group precious metals.
Plus, palladium is a hot commodity in the production of environmentally sound car exhausts. Gasoline-powered vehicles (as opposed to diesel) utilize palladium to limit the amount of harmful carbon dioxide (CO2) emitting into the air. As more and more automakers vie to limit their CO2 emissions, palladium will be a key force in hitting their targets.
2. Future Geopolitical Uncertainty
Nearly the entire world's supply of palladium comes from mines in South Africa and Russia. Both of these states rank relatively low on the global list of economic freedom, ranking 99th and 92nd worldwide, respectively. In both states, there are concerns regarding the rule of law, corruption, and market protectionism.
In a hypothetical future, both South Africa and Russia could be sanctioned or cut off from the rest of the world's global trade network. If this becomes a reality, the already-present palladium supply shortage will only take a turn for the worse, making it near-impossible to find investment-grade palladium. Therefore, it's best to invest in palladium while there are still abundant market opportunities and liberalized supply chains.
3. A Dipping U.S. Dollar
A relatively weak U.S. dollar makes palladium as an investment a much more attractive prospect. Since palladium and other precious metals like gold and silver are traded on international markets in U.S. dollars, a declining or weak dollar would provide less incentive for palladium miners and producers to bring their product to market.
Already, the U.S. dollar is dipping down due to inflation. In May 2021, U.S. inflation levels, as measured by the Consumer Price Index, reached 13-year highs. Although some experts dismiss recent surges in inflation as merely temporary effects of the pandemic recovery, it's impossible to accurately forecast the strength of the dollar in two or three years’ time.
If the dollar continues to slide, the price of palladium will increase as suppliers stop mining the metal. To hedge your bets against a declining dollar and the threat of looming inflation, it's best to invest in palladium today.
4. Retirement Portfolio Diversification
The average retirement investor has a lot to gain from investing in palladium. Commodities such as palladium bullion are not directly correlated with the stock market, which makes them invaluable assets if you’re trying to insulate your portfolio from volatility or the effects of stock market crashes.
Investing in precious metals such as palladium or platinum can provide an extra layer of resistance against erratic and sudden shocks to the equities market. If you want to reduce your exposure to stock market volatility, investing in palladium is one of your best options.
Fortunately, investors can add IRA-approved palladium to their tax-advantaged retirement accounts—even their self-directed 401(k). While it's possible to invest in palladium ETFs, only palladium bullion offers the deep diversification benefits that minimize risk. This is because ETFs are much more liquid asset types than physical bullion, and therefore are prone to much more volatile and responsive price movements.
Invest in Palladium in Your IRA or 401(k) Today
Palladium had a banner year in 2020 with an annual percentage change of +28.52% on the year. That far exceeds even the S&P 500, which increased only +16.26% in the same period of time. Clearly, palladium isn't just a hedge, it's also a growth asset and, as of now, the palladium price forecast for 2021 is optimistic.
There are plenty of reasons to invest in palladium in 2021, from environmental reasons to geopolitical. If you're interested in reaping the benefits of palladium investing, check out the Top 5 Palladium Coins for Investors for free today.