by Jonathan Buhalis
Precious metals offer the investor the opportunity to possess real physical metal in the form of bullion bars or rounds. Bullion is readily available as the precious metals of gold, silver, platinum, and now, palladium. The purchase price of bullion from reputable dealers is normally on a spot plus basis, that is, the current market spot price of the metal plus the dealer markup or transaction fee. When the investor wishes to sell the bullion, the bullion dealer will purchase it back, again at spot. A transaction fee may apply.
Palladium bullion is readily available for purchase from many online sources. Ownership of palladium offers similar investment opportunities as the better-known gold or silver. An exchange-traded fund (ETF) is now available, as well, which offers a similar investment profile without the need for physical storage.
The highest refined purity palladium available is refined by Johnson Matthey from ore mined by the Stillwater Mining Company.
Regarding palladium markets, Johnson Matthey, in a recent Annual Platinum Review, offer this assessment:
"Although autocatalyst and industrial demand for palladium rose, the sale of metal from Russian government-controlled inventories, together with a large amount of metal released from ETFs and higher recycling, meant that the palladium market moved into oversupply last year. Due to higher average year-on-year prices, many investors in palladium ETFs were in a position to take profit in 2011; others may have liquidated their positions to cover losses elsewhere. A deep sell-off in the ETF market, together with a perception of weaker fundamentals, led the palladium price, having tested the $850 level, to shed all of its gains since late 2010 in August and September 2011 and trade below $700 for the rest of last year."
Investing In Palladium Futures Futures contracts on palladium are actively traded on the NYMEX Exchange. Futures contracts play an important role for metal suppliers, for commercial users, and for investors speculating in future price movements.
An example of hedging is if you are a farmer and you have 1000 pounds of wheat to sell you could either wait until harvest and sell your wheat at the current market price, or you could use a futures contract to lock-in the price today. If the farmer is satisfied with the price of wheat today then he will sell (or short) the appropriate wheat futures contract. By shorting the contract he is guaranteed today's price at harvest time. How does that work? The gain or loss on the futures contract will equal the gain or loss on the market price at harvest time; we call this a perfect hedge. A mutual fund manager would use this same strategy, but with index futures he would short futures contracts on a stock index, therefore reducing any downside risk for a certain period of time.
Risks associated with futures contracts apply mainly to speculators. Speculators take positions on their expectations of future price movement often with no intention of making or taking delivery of the commodity. They buy when they anticipate rising prices and sell when they anticipate declining prices. The reason futures carry high risk is because they are usually bought on margin, and each futures contract represents a large amount of the underlying asset. For example a futures contract might cost $10,000 but represent $100,000 in the commodity. Futures rules dictate the size of the deposit and the amount of the contract that can be purchased through the use of margin.
The Exchange is a public market forum and anyone can play a role in these vital global markets. Participation is not difficult, but a few requirements must be met. The first step is to open an account through a licensed, Series 3, commodity futures broker. The broker will be your point of entry to the markets, so make your selection with the same care and due diligence as you would any other financial services professional upon whom you rely.
Investing in Palladium Mining Investors can buy shares in palladium mining companies. This is not a direct investment in the metal, and a rise in the palladium price doesn't necessarily mean an equal rise in the value of the company. In addition, most palladium is produced as a by-product of nickel or platinum mining. The few firms focused mostly on palladium include Stillwater, the largest primary producer of platinum group metals outside of South Africa, and North American Palladium.
The History of Palladium
Why Invest in Palladium?