While investors are focused on gold and silver, the time to start focusing on palladium may be here. Palladium doesn’t get a lot of love from the media. Many investors don’t find it as interesting as gold or silver. But that doesn’t mean you should ignore the potential for momentum to kick in… and kick in aggressively.
Several fundamental factors suggest that palladium is set for a bull run in the near term. These include resurgent demand from the auto sector, geopolitical factors (palladium is a byproduct of nickel, and any impact to Russian nickel would affect Palladium), and an economic recovery in regions such as China.
Let’s go through each of these.
On the automotive side, palladium is a core material for catalytic converters. It helps minimize environmentally detrimental pollutants such as nitrogen oxide, carbon monoxide and hydrocarbons gases in internal-combustion engines. With the tightening of environmental regulations across the globe, the demand for palladium will continue to increase long term, and automobile demand, while volatile, will be a constant driver of price.
What about on the geopolitical side? Russia is the lead supplier of palladium. Geopolitical tensions, notably due to the ongoing war in Ukraine, put supply coming from Russia at risk. That alone should make you bullish on palladium.
China, the third factor, is the main driver right now of palladium prices. The level of economic growth in China is the single-most important factor for global demand for physical palladium. Should China recover and reaccelerate its economic growth, it’s highly likely that it would carry palladium prices up with it. China is a net importer of palladium and has very little in the way of its own domestic supply.
There’s also more to the story than these three factors. It’s also about historical correlation.
Palladium is correlated strongly with other precious metals, and historically moves with gold and silver in bull markets, often with a lag. A rising tide in precious metals usually lifts all boats, at least to a degree.
The Bottom Line on Palladium
Palladium looks promising, but of course has its risks. Off it’s peak, it’s down a whopping 67%. The chart looks like it has bottomed, but for all we know, this drawdown may not be over. Furthermore, if China fails to deliver on economic resurgence plans, it will be hard for palladium to run.
Overall, I like the risk-reward balance and think there’s a strong run ahead. So, while gold is glittering and silver is soaring, keep an eye on palladium prices for a potential surprise surge ahead.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
