Why should I trade palladium?

Traders who like gold and silver because they are both rare and valuable will really appreciate palladium as it is one of the rarest metals on Earth. Palladium is over 30 times rarer than gold, and in addition to its role as a precious metal it also serves as an industrial metal, with some 60% of all palladium being used in the automotive industry. That connection actually makes it easier to trade palladium since its price often follows trends within the auto industry, rising when car sales are hot, and falling when the auto makers are struggling.

Is palladium the best precious metal to trade?

The price of palladium was rising strongly from 2016 to 2019, and many traders took advantage of that trend in which palladium tripled in price. A correction was forced by the rise of the coronavirus pandemic, but palladium could be the first metal to recover as supplies of the grey metal have lagged demand for nearly a decade. That could give traders another excellent opportunity in this most rare of precious metals.

What is the best palladium trading strategy?

Fundamentally palladium looks to be in an excellent position, with automotive demand continuing to grow, supplies of the metal constrained, and investment interest in the market growing. That could make a trend following strategy very useful. Buying on breakouts of dips will allow traders to capture most of the upside potential in palladium. Increasing demand from China and India will help prices, but because supplies of palladium are also limited the metal faces a strong uptrend that could last for years to come.

Palladium Trading

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Palladium CFD trading with AvaTrade

One of the rarest metals on earth, Palladium is the most valuable of the four precious metals. It is this shortage that pushes up the price of Palladium with around 85% used in car exhaust systems, where it aids the process of turning toxic pollutants into carbon dioxide and water vapour, which are less harmful. CFD trading in Palladium has seen a dramatic increase in trading volume since the 2000s. It is a fairly new way to trade this precious metal but an excellent way to diversify your portfolio.

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The Palladium Market

The palladium market is open from 23:00 to 21:59 GMT Monday to Friday and is traded on the New York Mercantile Exchange (NYMEX). Most of the Palladium mined, around 60%, goes to the auto industry. Other consumers of palladium are jewellery, electronics and dentistry. The price of palladium is determined against the USD, even though most of the mined palladium doesn’t come from the US. Palladium is counted in Troy Ounce, and the minimal amount needed to commence a trade is one ounce.

What Influences the Price of Palladium

As one of the rarest precious metals that exist on the planet, its price had seen fluctuations that might not be common for most instruments. From a price of $150 USD in 2003, palladium rose to 552 USD in 2008 – a span of about 5 years. In 2020, it is now worth $2349, which represents over 1000% gain since 1998. So what can cause such wild changes in palladium price?

There are three major factors that could increase palladium prices in the years to come:

Chinese Demand
Investment Demand
Energy Costs
Supply Control
China is a leading consumer of palladium and along with its population growth could also see an increase in its consumption in coming years. If you believe that the Chinese economy will climb over the longer term then investing in palladium is a way to gain exposure to the Chinese economy.
As more ETFs (Exchange Traded Funds) feature precious metals, this could see the demand of palladium grow as the silver and gold markets become crowded.
As mining becomes a bigger drain on energy reserves and even more expensive, it appears to be going out of fashion and making way for green energy. This could affect the rate at which palladium is mined and lead to a shortage.
As Russia supplies nearly 42% of the global usage of palladium, and another 38% is provided by South Africa, they gain control over the market and can affect the price. Another part is that Russia refuses to reveal how much palladium they have stored and how much is mined, therefore it is unknown how much they will supply in future years. Low estimates can bring on a rise in price.
The general political and economic state can always affect the different markets, however, the fact that only two countries are the main suppliers brings even more risks. A change that will affect one of them, especially Russia, can cause an upheaval in the palladium market. It is important to remember that often metals are linked to one another, so a dramatic change of palladium price might also result in other metals’ prices changing.
As mentioned before, some 85% of palladium usage goes to the auto industry. As more people buy and use cars, the price of palladium will rise as the demand rises. It is also true, naturally, to other industries that consume palladium, but as the auto industry is the main one by far, it has the most effect on its price. Also, Palladium demand is expected to continue rising, due to tightening auto emission regulations in Asia, the globe’s biggest consumer.

Trading Palladium with AvaTrade

As a unique and rare metal, palladium holds within it some glittering opportunities. Its volatility is not high, yet traders do favour palladium trading. Knowing that AvaTrade offers its clients trading of this rather rare instrument while enjoying the all the quality services provided by AvaTrade.