Why is Palladium So Cheap Right Now?
Palladium’s prices have been all over the place this year. Following its extreme high just two years ago in 2022, the metal fell considerably throughout 2023. Analysts point to the easing threat of Russian precious metal sanctions, an increasing global demand for electric vehicles, and platinum’s growing usage as a primary component in the automotive industry as three main reasons for the metal’s falling spot price.
For palladium bullion stackers, the past few years have been a wild ride. Palladium gained traction as one of the world’s most expensive precious metals in February of 2016. The metal skyrocketed in value in the period between 2016 and 2022, culminating in an all time high in March of 2022.
Why is palladium so cheap now? There are several reasons for palladium’s freefall in 2023. The silver lining for palladium investors is that the metal appears to be rebounding – but only a bit.
In today’s guide, we’re taking a closer look at why palladium is so cheap now – and what 2024 may have in store for the industrious precious metal.
Palladium’s All Time High
Before we can explore why palladium has become so cheap now, we’ll need to take a look at one of the biggest price movements in the modern history of the metal.
Palladium hit an all time high (ATH) in March of 2022, trading at over $3,400 per troy ounce. Since then, the metal has fallen considerably in price. What caused palladium’s all time high in 2022? The answer has a lot to do with the ongoing Russia-Ukraine war, which broke out in late February of the same year.
What Caused Palladium’s ATH?
For news buffs, this month should sound familiar. On February 24th of that year, Russia began its invasion of Ukraine. This is big news in the precious metals market – and it’s especially important if you’re someone who prefers silverish palladium bullion for your stack.
Just a month later, palladium prices hit a new all time high. The precious metal briefly traded at just over $3,400 USD per troy ounce. This made it the world’s most expensive precious metal – and it’s not even very close.
Russia is the world’s largest producer of palladium bullion. When Russia invaded Ukraine, the response from international leaders was swift. Investors feared that sanctions would interrupt the supply of palladium coming out of Russia.
As you probably guessed, investors started to buy up as much of the metal as they could in anticipation of sanctions crushing global palladium access.
This high only lasted for a few months, though. Starting in late 2022, prices began to fall considerably. Throughout 2023, palladium investors saw their portfolios collapse deeply into the red.
Why is palladium so cheap now, just two years after a groundbreaking all time high? Let’s take a closer look.
Why Are Palladium Prices Falling?
Palladium prices are falling for three main reasons:
- Replacement in key industrial products
- Diminished threat of Russian supply disruptions; and
- Growing popularity of electric vehicles in the United States
Together, these three factors paint a compelling portrait of why palladium prices continued to fall throughout most of 2023. If we look closely, we might even be able to spot a silver lining in the future of palladium prices.
Replacement in Key Industrial Products
The bulk of global demand for palladium comes from the automotive industry. In the status quo, this is much of where palladium gets its demand – and its value. Automobile shortages during the COVID-19 pandemic may have been one reason for palladium’s growing value in the lead-up to 2022.
However, palladium isn’t the only precious metal in high demand within the automotive industry. Platinum is also used in the production of catalytic converters, which are important vehicle parts used to turn fuel into power.
Platinum and Palladium Fight For Automotive Dominance
Automotive manufacturers constantly flip back and forth between palladium and platinum as the main component used in their catalytic converters. While there are some key differences in the efficacy of both precious metals, the key decision-making factor for most manufacturers is price.
When platinum is far more expensive than palladium, it becomes the most commonly used metal in the production of catalytic converters. The reverse is also true.
This means that when palladium became unnecessarily expensive in March of 2022, many manufacturers turned to platinum for their catalytic converters. This reduced demand for palladium, which is one major reason why palladium decreased in value during 2023.
Rise of Electric Vehicles in the United States
This problem was only compounded by the increasing popularity of electric vehicles. Electric vehicles don’t emit exhaust, which means that they don’t actually have catalytic converters. In other words, platinum and palladium aren’t as in-demand within the electric vehicle industry as they are inside of the traditional gas vehicle market.
According to the International Energy Agency, around 18% of 2023 vehicles manufactured will be electric. This may be good for the planet, but it’s bad news for some palladium investors. While the precious metal is always in high demand for traditional gas-powered vehicles, a global transition to electric cars means that palladium (and platinum) just aren’t as valuable as they once were.
Diminished Threat of Russian Supply Disruptions
Finally, we’re back to the main geopolitical factor that kicked off palladium’s 2023 bull run in the first place. As you likely already remember, Russia didn’t end up ceasing its trade of palladium in the wake of their war with Ukraine. Instead, the precious metals market in the country was, functionally, business as usual.
When the fear of supply disruption subsided, so did palladium’s value. The metal began to fall quickly after investors realized that Russia wouldn’t be cutting its export of palladium bullion to the international market anytime soon.
This was great news for people who were looking to get involved with stacking palladium. For long-time investors, though, it meant diminished returns on their existing investments.
Another big winner in Russia’s sustained ability to export the lion’s share of global palladium was the automotive industry. Palladium wasn’t a tenable material for the production of catalytic converters when the metal was trading at several thousand dollars per troy ounces.
But since prices have fallen consistently throughout 2023, palladium may make a return as the material of choice for automotive manufacturers across the planet.
Palladium Price Outlook: Will the Metal Rebound?
It’s tough to say whether or not palladium prices will increase in 2024. On one hand, it’s clear that the metal may become a more viable option for vehicle manufacturers looking to cut costs when producing catalytic converters. According to Reuters, platinum is gradually being replaced with palladium in many automotive markets.
Will increased demand from the automotive industry help palladium become a more valuable precious metal? Only time will tell. Like any other precious metal, palladium’s price is influenced by a number of different factors.
Positive Price Movement This Week
Some good news for palladium holders: palladium saw a moderate price increase early this week. The precious metal is down big for the month of January, but it saw modest gains during the 17th. In fact, the metal increased in value by around $40 per troy ounce.
This could just be a minor price bump instead of a sign of good things to come for palladium investors. However, some experts point to the price parity between platinum and palladium as evidence that the metal’s value may be heading for a bull run.
As catalytic converter manufacturers turn to palladium as a cheaper alternative to platinum, palladium is likely to see an inflated demand in late 2024 and 2025. This might mean higher palladium prices, which would be fantastic for longtime investors desperate to see some returns on their investment after a rough 2023.
Could Palladium Prices Recover in 2024?
Why is palladium so cheap now, and will it recover? Unfortunately, it’s impossible to predict how high (or low) the metal may go in 2024. The available evidence tells us three things:
- Russia is unlikely to stop producing and distributing palladium to the global economy.
- The automotive industry may increase demand for palladium as it replaces platinum in new vehicles.
- Increasing public interest in electric vehicles could make palladium less necessary to large-scale automotive manufacturers.
If this sounds like a set of very mixed signals to you, then you’re on the right track! Palladium is a unique precious metal. Unlike gold, which has quite a bit of intrinsic value, most of palladium’s price is determined by industrial demand for the metal.
In the event of supply disruptions from Russia as their war with Ukraine continues, expect palladium prices to shoot through the roof – much like they did in March of 2022. And if automotive manufacturers slow their substitution of platinum and return to palladium for key vehicle parts, palladium investors will likely enjoy some much-deserved profits this fiscal year.
Obviously, there’s quite a bit of “what if” in our palladium value outlook. We generally recommend that palladium investors pay careful attention to key value indicators. In the case of palladium, geopolitical developments involving Russia can have a massive impact on the metal’s spot price.
Perhaps even more importantly, investors should take a close look at automotive demand for palladium, as well as global demand for electric vehicles. As platinum becomes too expensive to procure, traditional vehicle manufacturers might drive palladium prices up as they transition to the metal in their catalytic converter production models.
But if the world continues to transition toward sustainable electric vehicles, we predict a rough few years for palladium bullion. After all, taking out the metal’s automotive demand would destroy the lion’s share of the metal’s global market.
Is Palladium a Good Investment?
In general, palladium is a good investment. If you’re someone who likes beautiful bullion coins and bars, then palladium should have a place in your portfolio.
Palladium also plays another important role in the modern investment portfolio: diversification. Because the metal is primarily valued for its industrial applications, it tends to be non-correlated with the “general” performance of precious metals. By adding palladium to your portfolio, you might be able to secure some profits when the other precious metals only see red.
Still, palladium has some notable downsides. The metal is in constant competition with platinum for usage in catalytic converters, an industry that makes up the lion’s share of global demand for palladium. When platinum wins the day, palladium becomes less valuable – making it an exceptionally volatile precious metal.
Ultimately, your decision to invest in palladium should come down to your own risk tolerance. Because of its massive price swings between 2022 and 2024, it’s easy to say that palladium is one of the riskiest precious metals on the market. However, great risk also means fantastic potential gains. Evaluate your risk tolerance before investing in a risky precious metal like palladium.
Comparing Palladium Coins and Bars
Both palladium bars and coins are a great choice for investors who want to diversify their portfolios. The precious metal has gained popularity within the bullion stacker community for its beauty, and some of the world’s best mints have obliged with a wide selection of quality pure palladium coins and bars.
Hero Bullion offers an extensive inventory of the best palladium coins and bars for stackers to collect. While palladium is an extraordinarily volatile precious metal, some investors like the idea of adding some diversity and risk to their portfolio.
Palladium coins are a good choice if you’re okay with paying higher premiums for a sleeker, more beautiful investment. Palladium bars are popular among stackers, since they offer lower premiums over spot price for the metal.
Final Thoughts: Why is Palladium So Cheap Now?
Why is palladium so cheap now? Palladium’s price has decreased as a result of Russia’s massive output of the metal, concerns over the popularity of electric vehicles, and platinum’s increasing role in the production of catalytic converters.
Together, these three factors make palladium far cheaper than it was just two years ago.
Keep checking back at the Bullion Academy to keep up-to-date with the latest news in the precious metals world!
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About The Author
Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.