Why Palladium Is Smoking Your Brexit Gold Investment

There have been thousands upon thousands of words written about Brexit, and still, no one really knows what the future will hold. Will the British economy suffer? What happens to the Euro? When will the next domino fall?  All of that uncertainty tends to drive people into so-called safe haven investments. And even though it’s not the best at hedging a portfolio for such shocks, one of the most popular portfolio hedges remains Gold (and to a lesser extent Silver).

But another little known commodity that rarely draws attention is outperforming its metal peers since the Brexit, via Bloomberg.

Palladium, Brexit, Gold

While it’s hard to believe it’s been a month since Brexit, it surely doesn’t make a track record. But it just so happens the lesser known metals – Platinum and Palladium, have been on an uptrend for a bit longer than that, with Brexit just adding some fuel to their upward trending fire.  While Platinum and Palladium are known to be among the lesser traded commodity markets, leading to some swift moves in either direction from time to time – they look to have found a longer term bottom… now breaking out of their 2015-2016 ranges.

Palladium, Brexit, Gold

Palladium, Brexit, Gold

(Disclaimer: Past performance is not necessarily indicative of future results)

When we see these types of moves in crude oil or corn, we can better understand the physical change it represents. There’s a lot of Crude Oil drilled out of the ground, prices go down thanks to oversupply.  There’s a drought in the Midwest, Corn goes up because of lack of supply. But what sort of drivers do these metals have?  What are Platinum and Palladium used for anyway?

Platinum is used in catalytic converters, laboratory equipment, electrical contacts and electrodes, platinum resistance thermometers, dentistry equipment, and jewelry.

Here’s a snippet from a good infographic on Platinum.

Palladium, Brexit, Gold

And Palladium:

Palladium is used to make springs for watches, surgical instruments, electrical contacts and dental fillings and crowns. 

Some specific stuff there, but both have more use than say, Gold. At least according to one of our favorite Warren Buffet quotes:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

So, car sales must be good to be eating into the Platinum and Palladium supply, but trying to gauge these factors and time when to invest in Palladium and/or Platinum (there’s some ETFs who would happily take your money) is fraught with danger. Look no further than the longer term chart of Platinum, which fell more than 50% since 2012.

Palladium, Brexit, Gold

(Disclaimer: Past performance is not necessarily indicative of future results)

The way to access these markets without having to be in the know of the latest platinum news is to invest in something to access those markets when it needs to but doesn’t have to deal with the day-to-day moves.

And that’s just what managed futures and global macro managers do. They don’t sit there waiting for fundamentals to line up for Platinum. They cover 60-80  markets that are between them constantly moving up, down, or sideways – and enter a market when it shows significant momentum in one direction or the other. One month that could be the Nasdaq, and another it could be Palladium – allowing them to capture the moves in the popular markets and the ones that don’t get headlines to themselves.

So get out there and buy some catalytic converters! All those invested in alternative investment programs covering the Platinum and Palladium markets will thank you – with many managers now long those markets and looking for prices to continue to trend higher.