It's among the scarcest metals on the planet.
There's only one large above-ground store, a strategic reserve the
Soviet Union spent 50 years accumulating. Russia decided to put the
stockpile up for sale in 1990 when it was estimated to total 27
million ounces. Since then, buyers have withdrawn about 25 million
The remaining balance is a state secret. But comments from Russian
MMC Norilsk Nickel indicate the reserve is nearly spent. Most
analysts estimate the reserve is now just 2 million ounces -- about
a three-month supply.
Meanwhile, the metal is exceedingly scarce; annual production rates
are less than one-tenth that of gold. About 90% of the world's
supply is locked up in just two spots (Siberia and South Africa).
This is exactly the sort of scarcity that can drive up prices. All
that's needed is demand. And we're seeing that too...
Mines around the world yielded a total of 6.3 million ounces last
year. Meanwhile, post-recession demand rebounded to 7 million
No, I'm not talking about silver or even platinum. And you know I'm
not talking about gold, either. Gold climbed 30% last year. That
was bested by silver, but both metals trailed the 97% gain of this
It's the reservoir for palladium that's running dry and there's
about to be some thirsty buyers.
Congress has authorized a palladium coin. Exchange-traded funds
from New York to Zurich now have more than 2.5 million ounces of
physical bullion in their vaults.
The versatile metal has a multitude of uses beyond simple
investment; most notably in the dental, jewelry and electronics
fields. But demand from the auto sector is greater than all of
those combined -- the metal is used in catalytic converters. And
despite decades of research, carmakers have never found a viable
According to automotive forecaster CSM Worldwide, global auto
production is forecast to reach 75 million vehicles this year, 80
million next year and nearly 90 million by 2014. That means a lot
more catalytic converters.
As supplies get squeezed, automakers are already doing their best
General Motors (NYSE:
recently signed an agreement with
Stillwater Mining (NYSE:
to buy future supplies of palladium -- without fixed floor or
ceiling prices. This contract is akin to a blank check. GM just
wants the metal, regardless of what it has to pay.
And here's the best part. There are only a small handful of
companies splitting this rich jackpot.
One of them is the aforementioned Stillwater Mining. Stillwater is
the only palladium miner in the United States. The company plies
the Beartooth Mountains of southern Montana, home to the planet's
richest concentrations of high-grade palladium ore.
Action to Take -->
I think 2011 is poised to be one of Stillwater's most successful
years ever. The scarcity of palladium gives the metal what it takes
to continue its powerful run, perhaps racing another 25% to retake
the $900/oz. mark.
That would be welcome news for Stillwater.
This is precisely the sort of situation I look for... dwindling
supply and soaring demand mean rising share prices. And if you
haven't seen it already, be sure to watch my
discussing other areas where scarcity is rearing its head and
offering investors an opportunity to
Click here to watch
-- Nathan Slaughter
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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