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Palladium Trading Strategies: Basics and Tips

Date Modified: 24/03/2024

If you have an interest in the precious metals market, incorporating palladium trading into your portfolio can be an effective way to diversify. Differing from the dynamics of trading gold or silver, palladium stands out for its lower liquidity and higher value. Additionally, its price is more directly affected by economic and political factors than gold or silver.

This article will explore several approaches to trading palladium. It will also cover the fundamentals of the palladium market and what to track to identify potential movements in the market. Consider this your essential palladium trading guide.

an image of palladium bars.

What Is Palladium?

Palladium, a lustrous silver-white metal estimated to be as much as 30 times rarer than gold, belongs to the platinum metal group along with platinum, ruthenium, rhodium, iridium, and osmium. Palladium is principally mined in South Africa, Russia, Canada, and the United States.

Palladium is highly sought after in a number of industries, particularly the automotive industry, which, as of January 2024, accounts for 80% of palladium demand. It’s used in the catalytic converters in fossil fuel vehicles and hybrids to reduce harmful emissions. Palladium is also in demand in the nuclear, electronics, dentistry, and jewelry industries.

When traded, palladium is identified by the ticker symbol PA and measured in troy ounces, a historical unit equivalent to 31.1 grams.

What Affects Palladium Prices?

The palladium market has a history of being highly volatile. For instance, in 2013, palladium prices showed fluctuations ranging from $650 USD to $800 per troy ounce.

In 2022, the range widened significantly, with prices fluctuating between $1,500 and $3,000 per troy ounce. At the start of 2023, palladium prices reached heights of approximately $1,800 per troy ounce but gradually declined to around $900 per troy ounce by year-end.

Global Mining Supply

Since the vast majority of palladium comes from just four countries—South Africa, Russia, Canada, and the United States—supply is closely linked with political and economic factors within those countries.

According to the United States Geological Survey, in 2021, South Africa was producing approximately 40% of the world’s palladium, and Russia 37%. This led to increases in prices in 2020 when mining in South Africa was disrupted by COVID-19 and an even bigger increase in 2021 in response to the war in Ukraine and sanctions against Russia.

Scarcity issues that push up palladium prices are predicted to continue in the coming years, as rising energy costs for mining and refining are likely to limit supply.

Industrial Demand

While you’ll find palladium accessories at specialist jewelers, the major demand for palladium comes from the automotive industry. As mentioned above, palladium is a key element in the catalytic converters used in fossil fuel and hybrid vehicles. As vehicle demand increases in growing economies and as more countries put carbon-limiting policies in place, the demand for palladium has risen.

Eventually, as demand for electric cars, which do not require palladium catalytic converters, increases, demand for palladium may decrease. Palladium is also used in the chemical, electronics, nuclear, and dental sectors, but much less than is used in the automotive industry.

However, the use of palladium in these sectors is also declining as shortages have forced the electronic and dental sectors to substitute palladium with more affordable and available alloys.

Why Are Palladium Prices So Volatile?

Palladium prices can be volatile because the metal is highly sensitive to economic factors, supply issues, upturns in demand, and political influences.

Market Availability

The liquidity of the palladium market is comparatively thin compared to other precious metals, such as gold and silver, and this relative scarcity can drive up prices as buyers compete for market share.

This trend is directly linked to global mining supply, industrial demand, and market sentiment. When palladium is perceived as being in high demand, traders often buy big, increasing scarcity and further pushing up the value.

How to Trade Palladium

If you’re interested in palladium, there are various ways to trade in precious metals.

You could buy palladium bullion and coins, but this is unrealistic for most traders. Owning tangible bullion comes with significant storage and security overheads.

More common is spot metal trading, when you purchase palladium at its current value and take possession of it. With this approach, rather than holding the actual bullion yourself, you’d buy palladium certificates through a bank or other intermediary that holds the metal on your behalf and covers storage and insurance costs.

Palladium CFDs

Contracts for differences, or CFDs, are a common way for small traders to trade palladium. As with other commodities, instead of physically purchasing or selling the asset, a broker and a trader agree on a contract stipulating a price they will pay now for a future exchange.

When you go long, you agree to buy palladium at today’s price, expecting that it will increase in value over time. As a result, when you close the trade, what you hold will be more valuable than what you originally paid, meaning you’ll have made a profit.

If you go short, on the other hand, you’re selling on the assumption that palladium will drop in value.

In the realm of CFDs, it’s common for brokers to offer leverage. Using leverage means that when you open a trade, you are only required to provide a percentage of the full value of the contract as capital rather than having to cover the entire value upfront. This percentage is called your margin, which exposes you to more of the market with a lower upfront capital outlay. Whilst leveraged trading can provide you with more exposure to the market, it exposes you to risk as it can magnify the profit or loss of a trade.

When palladium is traded as CFDs, many brokers set their full contracts at 100 troy ounces, but contract sizes can vary. Most platforms also offer mini contracts (50% of a full contract) and micro contracts (10% of a full contract).

Palladium Trading Example

As an example of a palladium CFD, you might agree on a full contract for 100 troy ounces of palladium while it’s valued at $900.00 per troy ounce. The value of your contract is $90,000, but you only need a 10% margin, or $9,000. Imagine that when you close the contract, palladium is worth $1,000 per troy ounce, so you now hold a contract worth $100,000, making a profit of $10,000.

Conversely, if the value of palladium fell by the same number of pips, you would have incurred a loss, which in this example would be $10,000.

You can help minimize the risk of how much you lose by using a stop-loss order when you open your trade. This automatically closes a trade when the cost of palladium drops to a level you’ve predetermined.

Palladium Trading Strategies

Traders use various strategies to determine the optimal times to open and close trades to maximize profits. While many strategies work for most commodities, the more effective strategies appear to depend on the specific commodity, its liquidity, and market volatility. Below are some of the strategies traders use for palladium.

Technical Strategy
A technical strategy is considered simple and effective and relies on understanding moving averages. A simple moving average is the average price of palladium over specific periods (which can be hours, days, weeks, etc.). An exponential moving average does the same thing but gives more weight to recent prices.

This strategy can generate signals to buy, for example, when a short-term moving average (e.g., 10 days) crosses above a longer moving average (e.g., 50 days), suggesting an uptrend or signals to sell.

Traders often look for other indicators before selling, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).

Price Action Strategy
A price action strategy analyzes raw price movement over time to make predictions about future movements rather than relying on external indicators.

This strategy is based on the premise that price movements often repeat in patterns. It identifies points where the market has a high chance of reversing, suggesting a good moment to open or close a trade.

News Trading Strategy
A news trading strategy focuses on understanding the external influences that might make the price of palladium move. This means monitoring economic data, government policies, and geopolitical events to identify events likely to change the market and in what direction the market is expected to move.

This strategy is often suitable when you intend to hold the palladium for an extended period, such as months rather than minutes.

Day Trading Strategy
Day trading, also called carry trading, is basically making trades within a short period of time and both opening and closing contracts during a single day’s trading session.

You can use a number of different strategies to identify bullish and bearish (increasing and decreasing) trends. A carry trade is open for only a few minutes or a few hours but always closes before the end of the day.

Palladium Trading FAQs

What are the risks involved in palladium trading?

Palladium trading can be risky because the price is highly volatile. That means it can rise quickly but also decrease quickly, potentially leading to losses. Stop-loss orders can help mitigate the risks of trading palladium by putting a cap on the amount you can lose.

However, trading palladium can also serve as a risk management strategy when used to diversify a portfolio of other trade commodities.

Is palladium suitable for short-term traders?

Palladium may be suitable for short-term trading because its price chart history shows price volatility. Day traders can take advantage of these movements within a single day.

Start Trading Palladium

Trading palladium CFDs with an online platform like Plus500 can be an effective way to trade this commodity and diversify your trading portfolio since palladium prices don’t tend to follow the trends of stocks and bonds.

To get started trading palladium, it’s a good idea to familiarize yourself with the factors that influence the market. This will help you identify the best way to trade palladium and the most appropriate palladium trading strategy.

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