How to Profit from the Palladium Bull Market
Palladium prices are soaring.And investors are cashing in...
The price of palladium has skyrocketed 237% since December 2008, driving up the share prices of producers and explorers and reminding investors that there is more to precious metals than gold and silver.
So what's pushing palladium prices higher?
Palladium has a number of industrial uses. It's often found in electronics — including computers, mobile phones, and LCD televisions.
But roughly half of the global supply of palladium is used in the manufacturing of automobile catalytic converters, which convert up to 90% of harmful gases from auto exhaust like carbon monoxide into less harmful substances.
As such, the demand for palladium is generally correlated to the health of the global auto industry, which has rebounded from the brink of collapse. Automakers around the world have recently been reporting strong sales figures as the industry continued to see signs of recovery.
Ford says its sales rose 25% compared to April 2008, marking its fifth month of gains topping 20%.
Meanwhile, Chrysler posted a 25% gain in April — the first double-digit increase for the automaker in nearly five years.
Even nearly bankrupt automaker General Motors says its April sales rose 6.4%.
Toyota reported that its U.S. sales rose 24% in April from a year earlier, as incentives continued to spur demand.
Honda Motor says sales rose 13% from a year ago, while Hyundai Motors posted a 24% gain in sales.
Automobile sales have also increased in the world's #1 car market, China. China's automobile sales jumped 71% in the first quarter this year. Experts predict sales of automobiles in China to reach 16.5 million vehicles in 2010, a 10% increase from the 2009 level.
At a time when the demand for palladium is increasing, supply looks like it could potentially be constrained...
The world's sources of palladium are extremely limited. Approximately 80% of the world's supply of palladium comes for just two sources: energy constrained South Africa and potentially unreliable Russia.
Half of the world's palladium supply comes from just three sources in Russia: Norilsk Nickel (OTCBB: NILSY), the Russian State Precious Metals and Gemstones Repository (Gokhran), and the Russian Central Bank.
Norilsk Nickel is the world's largest producer of nickel and palladium. Each year the company produces about 2.5 million ounce of palladium.
But this isn't enough to meet the world's growing demand, so Russia fills the deficit from Gokran and the Russian Central Bank. However, there are rumors that these stockpiles are rapidly becoming depleted; the actual level of Russian palladium stockpiles is a state secret.
Rising demand and a potential for supply constraints has spurred heavy investment interest.
ETFS Physical Palladium ETF (NYSE: PALL) holdings have increased over 400% since first being listed in January, taking further supplies off the market.
All this has resulted in a doubling of palladium prices in the past year and a half... And shares of palladium producers have followed suit.
North American Palladium (AMEX: PAL) has increased 475%, while share prices of Montana-based Stillwater Mining (NYSE: SWC) have shot up as much as 921% since December 2008.
With such a bull run in palladium prices, we may see a correction in the near future. Any correction should be considered a buying opportunity to establish a position for palladium's continued increase in the months and years ahead.
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