Investing In Palladium

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. 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.

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 their Annual Platinum Review, offer this assessment:

"For palladium, however, it was (and is) harder [than platinum] to make a bullish case for investment based on the metal's fundamentals. The market has been in a position of oversupply since 2001. Supply will continue to grow strongly from the expansion of PGM mining in South Africa and from increased recycling of auto catalysts and electronic waste. Even with the most optimistic projections for auto catalysts, electronic and dental demand, the palladium market appears set to remain in substantial surplus. Nevertheless, as the price of platinum climbed in 2003, fund managers increasingly inferred that the differential between it and the price of palladium would become unsustainably large. With the risk of a downward correction in the platinum price considered small, due to the metal's strong fundamentals, the conclusion was that the price of palladium would almost certainly have to rise.

"In addition, the platinum and palladium markets are very small compared with other commodities, and are minute compared with equity, fixed income or foreign exchange markets. Consequently, significant activity by hedge funds can move the price in either direction regardless of the fundamentals. Furthermore, price trends can rapidly become self-sustaining as funds that trade on momentum or technical indicators are drawn into the market."

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.

Nymex Trading Floor

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.

5 Year Palladium Prices

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