Investing in palladium metal occupies a different place among the profit of forex market traders; It has high volatility and provides a strong basis for bidirectional trading strategies.
Palladium, silver, and gold commodities are not as strongly correlated with any other emtias, but high volatility is an opportunity for some investors with a high-risk appetite. Namely, the high volatility in its price means a potential speculative income opportunity for investors who want to invest in the rise and fall of this rare precious commodity.
For investors who want to invest in it, let’s look at basic information such as when palladium metal was discovered, the properties of this metal, the metal, and world reserves.
What is Palladium Metal?
Palladium commodity, discovered by English chemist William Hyde Wollaston in 1803, is a precious and expensive metal with a shiny appearance, similar to silver, similar to platinum. Palladium with platinum, osmium, iridium, rhodium, and ruthenium; form the platinum group metals. Platinum group metals are present in 0.0005 parts per million of the earth’s crust. Platinum group metals, which are rare in nature, are very valuable due to their superior catalytic properties.
With the emergence of modern emission standards in the automobile industry, it has been used in catalytic converters to prevent air pollution. There has been a terrible explosion in demand. Palladium’s capacity to absorb hydrogen is 900 times greater than its volume, making it extremely valuable for the nuclear industry.
Since 1989, palladium has been used extensively for catalytic converters. So that, more than 75% of the total 208,000 kilograms of it extracted annually in the automobile industry is demanded.
Platinum Group (PGM) Reserves Including Palladium in the World
The producers of palladium are Brazil, Canada, and Russia. Since Russia supplies nearly 40% of the world palladium supply, geopolitical risks in this country strongly affect its price. Therefore, this situation creates an opportunity for investors who want to profit from fluctuations in palladium prices.
What are the factors affecting the palladium price?
For investors who want to invest in it, knowing the parameters that affect its price up to and down is important for trading success. So what are the main factors affecting the palladium price?
Developments in the Automobile Industry
We mentioned that the automobile industry has a share of approximately 75 percent in demand for palladium. In this direction, the automobile industry is the most critical market for it. Therefore, developments in the automobile industry on a global scale affect the price of this asset. In addition, the increase or decrease in automobile demand in developing economies, including China and India, is among the main factors affecting the palladium price.
Supply Restrictions or Increases
The supply restriction or increase of the countries with a significant share in the palladium supply directly affects its price. Major suppliers such as America and Russia provide three-quarters of the global palladium supply, political or geopolitical developments in these countries have the power to pose the risk of supply shocks. If Russia and other suppliers restrict the asset’s exports, the metal’s price will rise.
Is Demand Increasing or Decreasing?
We know that most of the demand for palladium comes from the automotive sector. In the automotive industry, the use of palladium-containing catalytic converters is on the rise as governments tighten regulations to reduce pollution, particularly from Chinese vehicles. The demand from consumers in this direction is forcing an increase in the use of precious metals in the automobile industry. Therefore, the need for this commodity is greater than the annual supply of it, and there has been a significant increase in its demand in recent years.
Investment Demand Speculation
There is increasing interest in the palladium commodity, and the more investors discover suitable supply/demand fundamentals for this commodity, the higher the prices. A price bubble can also occur when there is low liquidity in the commodity.
Portfolio Diversification
The zero correlation of palladium commodity with other commodities is seen as an important feature in terms of portfolio diversification. In addition, for investors who want to benefit from the volatility in the commodity price, taking the commodity into the portfolio is among the forward trading strategies. On the other hand, investors who want to invest in palladium can diversify their portfolios with commodities with lower volatility. In any case, investing in this commodity in the Forex market can produce attractive results for many investors to take advantage of price volatility.
What Should be Considered When Investing in Palladium Commodity?
When investing in palladium, it is very important to see the price action accurately. When investing in its commodities, we have covered the factors that can affect its price above. But there are other trading strategies to consider when investing in this asset.
We have stated that when there is high volatility in the price of palladium, its liquidity may change depending on the demand. Therefore, to reduce the risk when investing in portfolio commodities, it would be better to make a portfolio consisting of instruments with low volatility. E.g; precious metals silver and gold, basic metals copper and lead, agricultural products, or commodities with energy products as underlying assets can be selected for the portfolio.
Derivative products, where this metal is the underlying asset, are also leveraged in the Forex market. It should be noted that the leverage system includes loss risk and gain opportunity. In addition, when the volatility of the palladium commodity increases too much from time to time, it can create serious losses and serious gain opportunities when the leverage system is considered.
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