Palladium Investing Guide

Few developments in the precious metals markets surprised investors more than palladium’s dramatic price surge in the years leading up to 2022. A metal most people had never heard of quietly climbed from trading well below the price of gold to briefly surpassing $3,000 per troy ounce — more than double gold’s price at the time. Understanding what drove that move, and what the outlook looks like today, is essential context for any investor considering palladium.

What Is Palladium?

Palladium is a lustrous, silver-white metal and one of six members of the platinum group metals (PGMs), which also include platinum, rhodium, osmium, iridium, and ruthenium. It was discovered in 1803 by English chemist William Hyde Wollaston, who named it after the asteroid Pallas. Palladium is exceptionally rare — roughly 30 times rarer than gold by weight extracted annually from the earth.

The world’s palladium comes primarily from two countries. Russia (through the mining giant Norilsk Nickel) accounts for approximately 40 percent of global supply. South Africa accounts for another 37 to 40 percent, with smaller contributions from Canada, Zimbabwe, and the United States. This highly concentrated supply base is one of the most important structural features of the palladium market.

What Drove Palladium’s Price Surge?

Palladium’s explosive price rise was primarily a supply-demand imbalance story driven by the automotive industry. Like platinum, palladium is used in catalytic converters to reduce harmful vehicle emissions. The key distinction is that palladium is the preferred metal for gasoline-powered engines, while platinum is more commonly used in diesel engines.

As tightening emissions regulations — particularly in China and Europe — required more catalyst content per vehicle, automotive demand for palladium accelerated. Simultaneously, years of underinvestment in new mining capacity left supply unable to respond quickly. The palladium market ran in a structural supply deficit for roughly a decade, with above-ground inventories steadily drawn down to meet demand. The result was one of the most sustained commodity price rallies of the past two decades.

The Russian Supply Risk Factor

Russia’s dominant position as a palladium supplier creates a geopolitical dimension that became acutely relevant following the 2022 invasion of Ukraine. Western sanctions on Russia raised concerns about potential disruptions to palladium supply flows, contributing to price volatility. Norilsk Nickel, the Russian company responsible for producing a significant share of global palladium, remained largely operational but the sanctions environment created uncertainty about future supply availability and payment logistics.

This geopolitical risk is a double-edged sword for investors. It can create sharp price spikes when tensions escalate but also introduces unpredictability that makes palladium a more difficult metal to hold with conviction compared to assets with more diversified supply chains.

The Electric Vehicle Challenge

The most significant long-term headwind facing palladium is the accelerating adoption of battery electric vehicles (BEVs). Pure electric vehicles do not have internal combustion engines and therefore do not require catalytic converters. As BEV penetration increases as a share of total vehicle sales, the automotive demand base for palladium could shrink meaningfully over the coming decades.

The pace of this transition is deeply uncertain and varies by geography. Emerging markets like China and India — which collectively represent enormous future automotive demand — may take longer to electrify their vehicle fleets than Western markets. Hybrid vehicles, which still use catalytic converters, continue to represent a significant share of new vehicle sales in many markets. Near-term, catalytic converter demand for palladium remains robust.

The longer-term picture is more contested. Some analysts project a structural peak in palladium demand within the next decade. Others argue that rising per-vehicle catalyst loadings (using more palladium per vehicle to meet stricter standards) will offset declining unit volumes for some years. This uncertainty is one reason palladium requires more active monitoring than a metal like gold, which has demand drivers that are less susceptible to technological disruption.

Palladium’s Industrial Uses Beyond Automotive

While automotive applications dominate, palladium has other industrial uses worth noting:

• Electronics: Palladium is used in multi-layer ceramic capacitors (MLCCs), which are components in virtually every electronic device, from smartphones to laptops to industrial equipment.
• Dentistry: Palladium alloys have been used in dental crowns and bridges, though this application has declined as ceramic alternatives have improved.
• Hydrogen purification: Palladium’s ability to absorb large quantities of hydrogen makes it useful in hydrogen purification membranes, a potential growth market tied to the hydrogen economy.
• Chemical production: Palladium catalysts are used in pharmaceutical manufacturing, including the synthesis of numerous active pharmaceutical ingredients.

How to Invest in Palladium

Physical Palladium

Physical palladium bars and coins are available from select dealers. The IRS recognizes palladium as an approved metal for self-directed IRAs, provided it meets the 99.95% purity standard. The American Palladium Eagle, introduced by the U.S. Mint in 2017, is IRA-eligible. Physical palladium is less widely traded than gold or silver, so investors should pay attention to bid-ask spreads and dealer premiums, which can be wider than for more liquid metals.

Palladium ETFs

The Aberdeen Standard Physical Palladium Shares ETF (PALL) is the primary ETF vehicle for U.S. investors seeking palladium price exposure. It holds physical palladium and tracks spot prices minus fees, offering a convenient alternative to direct ownership.

Mining Stocks and PGM Producers

Companies like Norilsk Nickel, Anglo American Platinum, Sibanye Stillwater, and Impala Platinum produce palladium alongside other PGMs. These stocks offer leveraged exposure to palladium prices but carry significant company-specific risk, including the geopolitical exposure to Russia in Norilsk’s case.

Risks Specific to Palladium

Palladium carries several risks that investors should weigh carefully. Its market is small and relatively illiquid compared to gold. Price moves can be sharp and driven by developments in a single industry (automotive) or a single country (Russia or South Africa). The long-term demand outlook carries genuine technological uncertainty due to vehicle electrification. And the premium to own physical palladium (dealer spreads, storage, insurance) can be meaningful relative to the price of the metal itself.

Positioning Palladium in a Portfolio

Palladium is best understood as a high-conviction, higher-risk position within a precious metals allocation. It is not a substitute for gold’s safe-haven role. Rather, it offers exposure to industrial and technological demand drivers with a supply profile that could remain constrained for years. Investors drawn to palladium tend to have views on automotive industry trends, emissions regulation trajectories, or geopolitical supply risks that inform a specific thesis for the metal.

If you are considering palladium for a self-directed IRA, its IRA eligibility makes it possible to hold in a tax-advantaged context alongside more traditional precious metals allocations.