Platinum & Palladium: Darlings of Investment (pt. 1)

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"Platinum and palladium rose substantially in 2009 by 57% and 118%, respectively."

As investment products, platinum and palladium were often in the shadow of the king and queen of the PGMs gold and silver. But in the last few years, the two metals have reached a much wider investor audience via ETFs, particularly the physically backed ETFs. There is no question that they are a high-risk investment, but for the brave at heart the returns (and on occasion the losses) can be substantial.

Platinum & Palladium Returns vs. U.S. Asset Benchmarks

Platinum and palladium have outperformed U.S. equity, bond and commodity benchmarks by 40%–200% over the past five years. Although the market plummeted by 71% in 2008/09 according to the latest Johnson Matthey (JM) PGM report, it has recovered strongly in 2009/10 to not far off its previous peak. According to a recent ETF Securities presentation, platinum and palladium rose substantially in 2009 by 57% and 118%, respectively—great news for investors with the foresight to have been long from the lows of early 2009.

Arguably the PGMs are as much a store of value in times of tension as they are an industrial metal, as such their fundamental supply/demand drivers are only part of the equation when it comes to sentiment and prices. Having said that, a market in deficit is a market that will expect prices to rise, and a market in surplus is a market expecting prices to fall. So, let's consider where these conflicting drivers may push prices going forward.

Physical demand for both metals is driven by broadly similar applications as the following JM graphs show.

Physical demand for platinum

Physical demand for palladium

But the way each metal plays out has, in part, been a function of how pricing encouraged a migration of use from one metal to another and/or how technology increased demand for one metal over another for similar applications.

Global Platinum Demand
Global Platinum Demand

Palladium has seen increases in jewelry demand and auto-catalysts and has maintained steady industrial demand.

Global Palladium Demand
Global Palladium Demand

One trend both metals show is increasing investor demand as illustrated by the pale blue section increasing at the top of each bar in recent years.

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