Despite what you may read in the papers, the global auto industry is thriving…In fact auto production world-wide is increasing 6% this year.
And after a four-year study, we uncovered how you could get paid from every single one made — no matter what happens to an automaker’s share price.
The metal I'm talking about is palladium.
Palladium — along with platinum, rhodium, ruthenium, iridium, and osmium — is part of a group of elements referred to as the platinum group metals (PGMs) or platinum group elements (PGEs).
The rare silvery-white metal is used in a wide variety of applications: electronics, dentistry, jewelry, and chemical, among others.
But the principal application for palladium is in catalytic converters for automobiles, for which — especially in diesel engines — the metal has few substitutes.
Roughly half of annual palladium supplies go into the production of automotive catalytic converters, which convert up to 90% of harmful gases from auto exhaust 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 continues to see signs of recovery:
- Ford says its sales rose 22% last month compared to May 2009, marking its sixth month of gains topping 20%.
- Chrysler posted a 33% gain in sales in May, marking the first month in more than two years the company sold more than 100,000 vehicles.
- GM's sales rose 17%, led by new products such as the Chevrolet Equinox midsize crossover, Chevrolet Camaro muscle car, and Buick LaCrosse sedan.
- Toyota reported that its U.S. sales rose 7% in May from a year earlier, as incentives continued to spur demand.
- Honda Motor says sales rose 19% from a year ago, with the Accord and Civic sedans and Pilot SUV all up more than 30%.
- South Korea's Hyundai had its best May ever, with sales up 33%.
Overall, global sales of light vehicles are expected to rebound to pre-crisis levels within a few months and then rise approximately 3% annually through 2025.
Global Sales of Light Vehicles
Automobile sales have been also increasing 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 — nearly a 30% increase from the 2009 level. After that, Chinese auto sales are expected to increase approximately 69% through 2025.
Experts predict sales of automobiles in China to reach 16.5 million vehicles in 2010 — nearly a 30% increase from the 2009 level. After that, Chinese auto sales are expected to increase approximately 69% through 2025.
Chinese Light Vehicles Sales
A strong recovery in auto demand around the world will drive demand for autocatalysts and palladium.
This rising demand for autocatalysts has begun to spur heavy investment interest for palladium, pushing prices over 230% higher since December 2008.
Investing in Palladium
Like other precious metals, the traditional way to invest is buying palladium coins and bars.
Two of the most popular palladium bullion products right now are the Canadian Palladium Maple Leaf Coins and the Pamp Suisse Palladium Bars.
Palladium coins and bars can be bought and sold like any other precious metal. However, the liquidity of direct palladium bullion investment is not as good as gold and silver due to low circulation of palladium coins and wider spread between buying and selling price.
Investors can also trade palladium futures. Futures contracts on palladium are actively traded on the NYMEX Exchange.
But one of the easiest ways to take advantage of rising palladium prices is with the ETFS Physical Palladium ETF (NYSE: PALL). http://www.google.com/finance?q=NYSE:PALL This fund has become very popular this year; physical palladium holdings have increased a whopping 7,805% since first being listed in January.
With investment and industrial demand rising, palladium is getting more and more difficult to obtain.
So the companies that mine palladium are in a unique position to handsomely profit.
As a more speculative approach, buying shares of companies that mine palladium can yield the biggest gains. A 10% spike in the price of palladium may well lead to a 50% gain in the mining company's shares.
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