Benefits of Palladium Bullion as an Investment Against Inflation

Author: Focus on the User | 5 min read
Palladium Bullion Investments Are Great Inflation Hedges

Make no mistakes about it, if you are looking to beat inflation, you have your work cut out for you. There are only a few types of investments that can effectively fight the effects of inflation. In case, you're unclear regarding what inflation is, let me put it this way, it is the silent enemy of your hard-earned money. There's really no way around that conclusion. You work hard for your money.

You earned it the hard and honest way. But inflation will eat it up. Imagine putting a million dollars in a bank and letting it sit there for ten years. If the current inflation is 1% per year, at the end of those ten years, instead of being worth one million dollars, your money can only buy 900,000 dollar’s worth of goods and services. That's how nasty inflation could be. It's not enough to save money. Any fool can save. What makes it different when it comes to becoming wealthy and staying wealthy or just merely preserving the value of your cash is the right investment. Like it or not, there's only a tight range of investment vehicles that can effectively protect your hard-earned dollars against the ravages of inflation.

Inflation is never going away. As long as the US Federal Reserve prints out trillions of dollars every single year, your money will be worth less every passing year. If you extend the timeline long enough, your money will be worth exactly zero dollars. Make no mistake about it, inflation is seriously bad news. If you want to beat the bad effects of bad US economic planning and policy, invest in palladium bullion. Keep the following information in mind when looking to moderate the effect of inflation against your hard-earned assets.

Why Does Inflation Occur?

As briefly described above, inflation takes place when the amount of money in the total US economy reaches such a volume that there is more money than goods. When this happens, the money becomes cheaper, and it takes a lot more money to buy actual goods. The basic rules of economics never go away. It's all about supply and demand. If the supply of cash goes up, it takes more cash to afford the same basket of goods and services than a lower amount of money you used to buy.

As long as the US government and world governments for that matter rely on paper money, inflation will occur. Paper money is really just a piece of paper with an official government stamp that says that a particular government will back up that money. To put it in another way, modern dollars are basically worthless pieces of paper that only gain value when the US government says this piece of paper has value. That's all there is to it. It's only the word of the US government saying that its dollars have value that builds people's trust in that form of money. If you think about it, the only reason paper money has value is because people trust it. Once that trust is gone, that paper goes back to being worthless. This is the tragedy of modern fiat currency.

Sadly, all major currencies like US dollars, Japanese Yen, European Euros, they are all fiat currencies. They only have value because certain government says they have value. It is no surprise then, considering the nature of modern currencies, that inflation is such a major threat. If you want your hard-earned dollars to be worth something several years from now, you have to invest it on an inflation hedge. When it comes to inflation hedges, equities-based assets might not be it.

See also: Comparing Precious Metals Like Gold to Inflation

The Most Common Weakness of Equities-Based Assets

Equity is another term for stocks or stock-related securities. Equities might on its face look awesome. After all, if you draw the timeline long enough, the US Dow Jones industrial average shows a very decent annual return. In fact, you can get a monkey and have the monkey randomly throw darts at a list of Nasdaq and New York stock exchange-listed securities, and chances are quite good that for every loser on that list, the monkey will randomly find some winners. Overall, your diversified portfolio can produce a positive return. The problem with equities-based assets is that they aren't guaranteed to protect you against inflation. There is such a thing as stagflation. The clearest example of this in US financial history is during the 1970s after the oil shock of the Arab oil embargo. In that period, during the presidency of Gerald Ford and Jimmy Carter and the early years of Ronald Reagan, the US stock market grew at an anemic rate. The US GDP was basically flat on its back, and inflation ate up most Americans' hard-earned net assets. It was a dark economic age for the US economy.

If you thought those days are over, think again. Considering the huge reliance on oil of the global economy, it is anyone's guess if there would be another oil shock or some sort of commodities-based disturbance to global equity's markets. When this happens, inflation spikes up. Equities can only grow so much and there would be a shortfall between general economic growth purchasing power and an overall rate of inflation. In short, while equities do show a good track record of at least keeping up with inflation, there are certain historical disturbances that don't make playing the Dow Jones a slam dunk.

Investing in Palladium as a Hard Asset

If you want to hedge against inflation, but you don't want to go all in on an equities-based strategy, you might want to diversify your portfolio with palladium. Palladium is a rare precious metal. It is rarer than gold. It is definitely rarer than silver. Palladium is considered a hard asset because there's not that much of it. Sure, every single year palladium is being mined, but it doesn't get produced in such a heavy volume that whatever new palladium taken out of the earth depresses the value of existing palladium. In short, it's quite a stable precious metal. This is a key distinguishing definition of a hard asset.

Another reason why it's a hard asset is because it has industrial demand. There is an actual industrial use for this precious metal. People don't just value it just because it looks great, or it can be used for jewelry. There is an underlying economic base and demand for palladium and palladium bullion for that matter. Investing in palladium bullion is a hard asset investment. As a result, you get to enjoy the historical benefits of investing in hard assets.

Find Out How to Invest Palladium in Your IRA

Don't Forget Palladium's Strong Industrial Demand

One of the main reasons people invest in palladium bullion is the fact that palladium is used in many industrial goods such as the automotive industry. It is a raw material for key products. Even if its role as a metal store of value disappears overnight, you are still assured that it would still retain some of its value. Why? There's an industrial use for it. Its value doesn't completely disappear. In fact, considering the sensitive industrial uses of palladium, chances are good that its value will remain fairly constant.

So what are the industrial uses for palladium? Its most expensive use is as a component for catalytic converters. In the United States, all vehicles require catalytic converters to cut down their hydrocarbon emissions. In other words, catalytic is installed so their pollution emission is reduced. Indeed, the use of palladium in auto-catalyst converts 90% of the hydrocarbons produced by internal combustion engines in cars into harmless carbon dioxide, water vapor, and nitrogen. When you invest in palladium bullion, you can rest assured that significant part of its value remains overtime because of palladium's usage as a key raw material for a catalytic converter. Other industrial uses for palladium include electronic conductors and circuit plating, dental alloys and fuel cell alloys and its use as a chemical.

In fact, its use in chemical processes is quite important because palladium is often used to refine nitric acid, and it also plays a part in raw material conversion to make synthetic rubber. Due to these industrial uses, investing in palladium bullion makes a lot of sense. If you are looking at palladium bullion as a store of value, you can at least lean on palladium's industrial usage.

Industrial Uses of Palladium

There are increasingly more uses of palladium that ensures a strong price for this metal.

Palladium Rarity Provides an Asset Price Floor

As briefly mentioned above, palladium doesn't exactly ooze out of the ground. There're only a few places on the planet where palladium can be mined. Also, even when it can be found, there's simply not enough of it. Its rarity helps ensure that its value can remain elevated. It doesn't guarantee it, but it increases the chances that there would be no sudden corrosion in the value of palladium bullion or palladium-related investments. Why? Again, we're talking about the basic economics of supply and demand.

Since the supply of palladium bullion and palladium in general is very low, the increasing demand for industrial uses and also as investments put an upward pressure on the price of palladium bullion over time. This convergence of low supply and steady demand provides an asset price floor for palladium bullion and palladium-related investments. This is also present with many other types of precious metals.

The Historic Flight to Quality

In our uncertain economic times, asset prices based on equities can crash overnight. This definitely happened in 1987, it happened in dotcom crash, and it happened in the financial credit crunch of 2008. Considering how bizarre equity's markets are behaving recently, it is just a matter of time when the global equity's market will suffer a major correction. By major correction, we're not just talking about a loss of maybe 5%-10%, we're talking about a long-haul correction, similar to the crash the Dow Jones experienced in 2008. The warning signs are there.

The global economy is still relatively soft. The American economy is still suffering from fundamental weaknesses. Most alarming of all, the US federal debt is several trillion dollars in the haul. This is simply unsustainable. It's just a question of time when the US economy has to pay the piper. When such economic corrections happen, precious metals like palladium bullion always offer a safe haven for investors looking to protect their asset value. While equity wealth is great when the market is on an upswing, it can easily crash. Astute investors often flee to quality investments that resist the downward pressures of market crashes and also hedge against inflation during uncertain times. This is why palladium bullion and other investments based on precious metals do quite well during market crashes and times of prolonging economic uncertainty.

Palladium Price History

The historic price trend of palladium.

Palladium as an Inflation Shelter

If inflation spikes up, and economic growth drags similar to the stagflation of the 1970s, you can be assured that palladium bullion and precious metal investments in general will do their historical jobs. They would make for great inflation shelters.

As mentioned above, at the very least, they should keep up with inflation because inflation as the purchasing power of the American dollars crash because there is an underlying economic base value to palladium bullion and precious metals in general. It is a great idea to diversify in palladium bullion while the market is skyrocketing. In fact, it might be a good move to park some asset appreciation into palladium bullion as the market spikes up. Once crash occurs, this is when the palladium bullion investor can really start reaping serious benefits.

Palladium as a Nest Egg

Palladium is a great way to protect your assets from inflation while investing in your future.

Palladium Bullion as Staging Ground for Asset Recovery

The great thing about market crashes is that they can actually be the best times to make money. This may seem counter-intuitive, but it should really be quite apparent. It's very hard to make money when the bull market is raging. When the bulls have taken over Wall Street, you can only go up so far. There is always the impending reality of potential correction. When the market crashes, however, the resulting volatility enables strategically positioned investors to make money when the economy is going down and make money when the economy is going up. The best way to do this is to diversify into precious metals. When the market crashes, cash out some of those precious metal holdings to snap up blue chips and other strategic stocks.

Usually, when there's a market crash, there's a quick bump up within a short time frame. Ride the bump up in equity values and then cash out. And then park the money into precious metals like palladium bullion again. Once the market crashes again, cash out of precious metals and repeat the process. As much as investors hate volatility, if you are well-positioned, you can actually benefit a lot from volatility. In the dark and gloomy days of market crashes, volatility can be your friend especially if you invest in precious metals like palladium bullion.

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