Palladium: The Best Buy in the Precious Metals Market in 2023
As we close out 2022 and begin a new year, it’s helpful to reflect on the past year and see how precious metals have performed, if we are able to identify any trends, and which precious metals may be strong buys in the coming year. At the time of this writing, most precious metals performed reasonably well. Gold finished the year flat, although it reached an all-time high earlier in the year of $2,075, silver increased by 6%, and platinum was the top performing precious metal at an 11% return. However, palladium, for the second year in a row, finished in negative territory and has begun 2023 on a down note. In fact, it is currently trading below gold, which hasn’t happened in years.
While palladium is an afterthought for a lot of investors, it shouldn’t be discounted, especially at current levels. We’ll share with you a little about palladium, the various investment options, why we believe that it has underperformed in 2022 and why it may surprise investors to the upside in 2023.
What is Palladium?
Palladium is a precious metal that is not widely known. Even many seasoned precious metal investors know little about with this metal, as they tend to focus on gold and silver, and to a lesser extent, platinum. For those that aren’t familiar with palladium, it’s a soft white metal similar in color to platinum. In fact, it’s considered part of the platinum group of metals (PGM). For those readers who are interested, the other metals that compose PGM are ruthenium, rhodium, palladium, osmium, iridium, and platinum.
While gold and silver were discovered thousands of years ago and reportedly have been used as money as far back as 600 BC, palladium was only recently discovered on a relative basis. William Hyde Wollaston, an Englishman, is credited for discovering palladium in 1803 while analyzing samples of platinum ore from a South African mine.
In fact, South Africa remains one of the biggest producers of palladium in the world, only second in volume to Russia.
What is Palladium Used for?
Palladium has a number of uses and has recently eclipsed platinum as the most widely used metal for catalytic converters. Among the other uses include dentistry, electronics, jewelry, medical uses, and more recently, coins and bullion.
An estimated 90 – 95% of palladium is used for industrial purposes versus only 10 – 12% of gold and approximately 50% of silver. This means that a very small percentage is used for jewelry and the production of coins and bullion for investment purposes. Furthermore, palladium is incredibly rare. To put things into perspective, palladium is 15 times rarer than platinum, 30 times rarer than gold, and 100 times rarer than silver.
Being that this is the case, you would expect there to be a limited number of investment options available, and you would be correct. We’ll discuss some of these options, including the estimated number of coins produced (where available), to put things into perspective.
Other industrial uses include:
- Automotive catalytic converters: Palladium is used in the production of catalytic converters, which are devices that reduce the harmful emissions produced by vehicles.
- Electronics: Palladium is used in the production of electronic components, such as connectors and switches.
- Dental equipment: Palladium is used to make certain types of dental equipment, such as crowns and bridges.
- Jewelry: Palladium is used to make jewelry, particularly white gold.
- Fuel cells: Palladium is used in the production of fuel cells, which are devices that convert chemical energy into electricity.
- Chemical and pharmaceutical industries: Palladium is used as a catalyst in the chemical industry, and it is also used in the production of certain pharmaceuticals.
You don’t have to go back very far to trace the origins of palladium as an investment. Sierra Leone was the first country to issue a palladium coin in 1966, followed by Tonga the following year.
It wasn’t until 2017 that the U.S. Mint produced the first palladium coin. Through 2022, an estimated 90,000 palladium eagles have been produced, which puts the average annual mintage at roughly 15,000 coins. To put things into perspective, the U.S. Mint produces hundreds of thousands of 1 oz gold eagles annually and has minted over a million coins in six of those years since the first gold eagle was produced in 1986. Thus far, these coins have been widely popular among investors and collectors, so it will be interesting to see if the U.S. Mint increases the mintage in the future.
Another popular palladium investment is the 1 oz Canadian palladium maple leaf coin. The coin was first produced in 2005 and had a limited run through 2010. Nearly 222,000 coins were produced over this six-year time span. To date, there are no reports of the Canadian Mint resuming the production of palladium coins in the future, so the available quantity may be the extent of these coins produced, which will make these coins scarcer in the years to come.
Some of the other recognized palladium coins in the marketplace are the Russian ballerina, the Chinese palladium panda, and the Australian palladium emu, all of which were produced in limited quantities. Palladium bullion, in the form of bars, also exist as an investment option. Johnson Matthey, Engelhard, Valcambi and Baird are the most recognized and traded. Even then, these bars are produced in limited quantities.
Because of it’s use as an industrial metal, the price of palladium is subject to wide swings, and in fact, is the most volatile of the precious metals. We saw the price of palladium skyrocket to $3,440 in March of 2022 at the beginning of the Russia-Ukraine conflict, and saw it pull back as far as $1,592 at its low.
The volatility appears to be more like a high-flying tech stock or cryptocurrency as opposed to what most investors associate with precious metals. However, volatility also provides opportunities. Savvy investors, realizing that palladium had never previously reached the $3,000 level, could have cashed in at a substantial profit. In fact, the price of palladium nearly tripled from the beginning of 2019 until it reached its high of $3,440 in early 2022.
Obviously, investing in palladium is not for the faint of heart. If you’re fortunate enough to be considering an investment in palladium for the first time, you’ll able to acquire it at a multi-year low. Furthermore, the Russian conflict doesn’t seem to be subsiding. If anything, it’s escalating, and considering that Russia produces nearly 50% of the world’s palladium, we could see some substantial shortages in 2023, causing manufacturers to bid up the price to acquire this versatile metal.
You may be wondering why we saw a sharp selloff in palladium during 2022. This may be associated with an economic slowdown, the concern of a recession, and the limited number of vehicles that were produced in 2022 in large part due to semiconductor shortages. However, at present, we’re experiencing a 40 year high in inflation and have seen an increase in commodity prices across the board. Considering that mining costs have also increased, the all-in cost to mine, produce and fabricate palladium will continue to rise. Higher costs and potentially limited supply could cause upward pressure on this metal throughout 2023 and beyond.
In conclusion, we’ve touched on a few aspects of palladium that might be new to you. Palladium is a diverse metal that is primarily used for industrial purposes. Only recently has it been viewed as an investment metal. While it’s slowly gaining in popularity, it still has a ways to go to catch up to gold, silver and platinum, as is evidenced by the limited number of coins and bullion investment options available.
The current price, the fact that the world’s production is essentially limited to two countries, and one of those countries has been heavily sanctioned by the U.S. bodes well for limited supply and higher prices in 2023. However, before diving in, make sure that you have a high-risk tolerance, as palladium is by far the most volatile precious metal, and doesn’t perform like other metals you may be more familiar with. Pay attention to the charts and strike when the price hits your target range.
At Atlanta Gold & Coin Buyers, we deal primarily in gold and silver coins and bullion and to a lesser extent platinum and palladium but believe that it’s an intriguing investment in 2023.
Whether you’re in the market to buy or sell precious metals, we have you covered. There’s no better time to begin investing in precious metals than now. Contact us at 404-236-9744 to schedule an appointment and see why we’re the leading coin and bullion dealer in metro Atlanta and beyond.