Commodity price speculation: Palladium

One of the many reasons why traders use binary options is that these options makes it really easy and safe to speculate on commodity prices. You do not actually have to invest in commodities (or commodity-dependent company shares) to make a profit if you use binary options. As always, an advantage with binary options is that you know in advance exactly how much money you are risking and exactly what you will get paid if the option expires in-the-money. This is appealing to traders who want to speculate on commodity prices while also being sensible about risk management.

Binary options are available for a wide range of underlying commodities. Before you get started, it is always recommended to read up on the commodity you are interested in and learn about the market for that specific commodity. That way, you will be in a better position to make informed decisions.

Below, we will take a closer look at one of the many metal commodities that you can speculate on using binary options: palladium.

palladium coin

Palladium coin

What is palladium?

Palladium (Pd) is a silvery-white rare metal. It belongs to the platinum group of metals (PGM) and has the lowest melting point and lowest density than any of the other metals in that group. That makes it extra desirable for certain applications. (The other members of the platinum group of metals are platinum, rhodium, ruthenium, iridium, and osmium. All members of this group have similar, but not identical, properties.)

On the commodity market, palladium bullion is traded using the ISO codes XPD and 964.

What drives demand the palladium market?

The automotive industry is a strong driving force behind the global price of palladium, so you can expect the palladium price to be impacted by automotive industry trends. (And you can also expect other traders to be aware of this relationship and act accordingly on the market, which makes the trends even stronger.)

Why is the palladium price linked to the automotive industry? Because over half of the supply of palladium and its congener platinum is currently used for catalytic converters. In many countries, catalytic converters are mandatory, so automotive manufacturers have no option but to pay for palladium (or platinum) if they want to make legal vehicles. In general, you can expect positive automotive sales forecasts to boost the price of palladium.

The fact that both palladium and platinum can be used to make catalytic converters also mean that their respective market prices are linked to each other.

Other notable drivers

Examples of other notable usages of palladium:

  • Electronics. In the mid-2000s, the electronic sector was already using over 1 million troy ounces of palladium per year, and the number has rose even higher since then. Among other things, palladium and palladium-silver alloys are great electrodes for multi-layer ceramic capacitors. Also, palladium and palladium-nickel alloys are used to plate components and connectors in consumers electronics.
  • Certain aircraft spark plugs
  • Medicine and dentistry, including surgical instruments, blood testing strips and certain dental fillings
  • Jewellery, watches and certain musical instruments
  • Hydrogen purification
  • Fuel cells where hydrogen and oxygen react to produce electricity, heat and water
  • Groundwater treatment

Market supply

As with other commodities, the market price of palladium can be seen as an interplay of supply and demand – and predictions about future supply and demand. Events around the world that are suspected to have an impact on the future supply of palladium can therefore have a quick and significant impact on the market price of palladium.

Most of the world´s supply of palladium comes from the following four countries: Russia, South Africa, Canada, and the United States. In 2016, the global supply of palladium from mines amounted to 208,000 kilograms and of that 82,000 kilograms came from Russia. The Norilsk Complex in Russia is one of the main known deposits of palladium. Examples of other extensive deposits are the Norite belt of the Bushveld Igneous Complex in South Africa, the SudburyBasin and Thunder Bay District in Ontario, Canada, and the Stillwater Complex in Montana, United States.

It should be noted that palladium is also being recovered from scrap, especially from catalytic converters.