Precious metals like gold, silver, platinum, and palladium are used as a safeguard against financial troubles which can make them excellent investment opportunities. But how do you know which you should invest in? One way is to use metal ratios, and in this article we will look specifically at the gold to palladium ratio.
To have a clearer understanding of which metal is a better buy at the moment, investors use an indicator called the gold to palladium ratio.
What Makes Palladium More Valuable Than Gold?
Defined as a glistening white-silver material, Palladium, is the most expensive precious metal, followed by gold, platinum, and finally silver. In early 2021, Palladium hit an all-time high of $2,941. Palladium prices also surpassed gold prices.
Due to its unique properties, Palladium is soft and quite flexible, making it less dense than other metals. Similar to platinum, palladium is also highly resilient to corrosion and grazing, making it one of the most durable precious metals available today. For these reasons, the metal palladium is used in the automotive industry. The properties of Palladium help turn toxic impurities into less-harmful carbon dioxide and water vapor.
But what makes the price of palladium higher than gold is scarcity. Supply has consistently not been able to meet palladium's increasing demand. This is because of the metal’s heavy industrial usage. The demand for Palladium usage has increased as governments constrict regulations to lower pollution from vehicles. This has forced the automotive industry to increase its purchasing of palladium to meet new automotive standards.
What is the Gold to Palladium Ratio?
The gold to palladium ratio helps investors determine the value of one metal over the other. This ratio helps indicate the current state of the respective precious metals in the market. If you are an investor, to understand the indication, the number of the ratio is the price of the gold divided by the price of palladium. As of the present up until 2021, the ratio stands at around 0.98.
Over the past 51 years, the gold to palladium ratio has had huge fluctuations, ranging from a high of above 6.0 to a low well below 1.0.
This ratio is used by investors as a way to indicate if gold has been 'overbought' or 'oversold'. If the gold to palladium ratio is at an extreme (higher than 4.0 or below 1.5), this can signal trading opportunities for investors. A low ratio indicates that palladium can be over-purchased which can signify a selling opportunity.
Conclusion
Both palladium and gold have benefits to investors in designated markets. Palladium's industrial usage is expanding and the metal has huge prospects in the future, especially with the world trying to reduce carbon emission. The scarcity of palladium alone could drive its value, ultimately making demand unable to meet supply.
In comparison, gold has a much more flexible market, can be bought and traded through ETFs, crypto-currency, and is generally accumulated or purchased to leverage against inflation and market volatility.
