People use this material as a catalyst, mostly in reactions involving hydrogen. If you drive a diesel-powered car or truck, you're sitting on some of it. And it's a "buy."
Where are we going with this? Let's start over 200 years ago, with one of the men who founded the Harvard Law School.
Joseph Story (1779–1845) was born during the American Revolution, and came of age in the early years of the new United States of America. He was a scholar of the U.S. Constitution, and, as I mentioned, eventually helped found the Harvard Law School.
In 1811, Story was appointed to the Supreme Court by President James Madison — who knew a few things about the U.S. Constitution, in that he helped write it. Story was a contemporary of another famous member of the Supreme Court, Chief Justice John Marshall (1755–1835).
In 1833, Justice Story published a study titled, Commentaries on the Constitution of the United States. In a discussion of the Second Amendment, Story stated:
The right of the citizens to keep and bear arms has justly been considered, as the palladium of the liberties of a republic; since it offers a strong moral check against the usurpation and arbitrary power of rulers; and will generally, even if these are successful in the first instance, enable the people to resist and triumph over them.
These days the Second Amendment makes for another discussion. My point is that I like Story's use of the word palladium.
That is, in modern usage, the word palladium identifies something on which the safety of a nation is believed to depend. It's a supreme safeguard.
The Palladium Play
I like the idea of palladium, both in the intellectual-legal context, and as a metal on which to base an investment-themed idea, appropriate to this newsletter.
So let's return to palladium metal, which I began to describe at the beginning of this article. Palladium is part of the platinum group, as I mentioned, and indeed, palladium is often mined together with platinum.
Let me restate another point, from above. In terms of investment, right now, palladium appears to be a palladium of investment opportunity.
First, let's look back. Here's the five-year price chart for palladium.
As the chart indicates, palladium prices crashed in the 2008 meltdown. Then things recovered steadily for about two years. Palladium pricing was strong into 2011, but weakened near the end of that year and languished all through 2012.
What was the problem for palladium last year? Basically, weak palladium demand and pricing had to do with overall industrial weakness in the European Union, North America and Japan, particularly in their respective auto sectors.
The fact is that palladium is used mainly in automobile and truck catalytic converters, particularly for low-temperature exhaust, specifically from diesel engines. For high-temperature exhaust from gasoline burners, you need platinum. But for diesel engines, palladium will do fine. That's why I stated, above, that you may be sitting on palladium if you drive a diesel-powered vehicle.
Looking ahead, the auto sector is recovering in Europe, North America and across the developing world. Automakers have scheduled their production runs, and what's the fastest-growing kind of vehicle? Diesel-powered. I could give you all manner of support for this, from a wide variety of auto-sector analysts, but I want to stay focused on the palladium angle here.
Suffice to say that world industrial demand for palladium is growing strongly, what with the use of the metal in diesel engine catalytic converters. Meanwhile, mine output of palladium is stagnant, while global stocks — primarily from Russia — are as tight as banjo strings.
Let's cut to the chase. We've got a metal play here. Demand for palladium has been stagnant for over a year, but now is growing. There's not enough new palladium mine output (plus recycled metal) to meet the need. So how can you invest in palladium?
There are two ways to play it. One, which I've already tipped my readers, is to own a company that mines the metal. The big players here are in South Africa – and yes, there are risks associated with mining and in particular mining in South Africa.
But today I'd urge you to look towards a different way to play palladium. For today's purposes, I suggest you own palladium that's already gone through the mine, mill and refinery. That is, own physical metal — ingots of palladium.
By understanding what's going on with the world's palladium markets, you're way ahead of a looming shortage and price increase. We could see substantial gains in palladium over the next two years, which makes this — as Joseph Story might have said — a "palladium" of investment opportunity.
That's all for now. Thanks for reading.