If you want to see the one precious metal that has been beaten senseless by the disaster in Japan, take a look at Palladium (PALL). Thanks to its close ties to the auto industry, the white metal has plummeted by 22% since its February peak. Similarly used platinum (PPLT) has been pared back by 9%. If you believe in the “V” economic scenario that I described in a previous article, and the auto industry specifically, these should be the first metals that you pile back into.
Palladium was one of my star performers last year, soaring by 112% since my initial recommendation in January, 2010. Double dippers beware! Moves like this by industrial commodities do not occur in the face of a collapsing economy.
It’s looking like the car manufacturers, which consume huge amounts of the palladium and platinum, could turn out as many as 13 million cars this year. This could rise to 15 million by 2015. The 2008 nadir was a paltry 8.5 million vehicles. You can forget seeing the drug induced haze of 20 million annual units free money brought us, returning in our lifetime. Fewer than one million of these will be hybrids or electrics. That means industry demand for catalytic converters is ramping up by another 1 million units a year.
Some 80% of the world’s palladium production comes from Russia and South Africa, dubious sources on the best of days. This means that a long position in this white metal gives you a free call on political instability in these two less than perfectly run countries.
Also known as the “poor man’s platinum,” demand for palladium for jewelry in China has been soaring with the growth of the middle class. On top of this, you can add huge new investment demand from the palladium ETF (PALL) last year. The fund is thought to be bumping up against of its position limit of 1.29 million ounces, which amounts to a breathtaking 18% of global production in 2009.
If you are looking for something to stash in your gun safe, bury in the backyard, or give to the grandkids on their college graduation, get physical. You can buy 100 ounce bars at $50 over spot or Royal Canadian Mint one ounce .9995% fine palladium Maple Leaf coins at $50 over spot.
By. Mad Hedge Fund Trader
