What About Palladium?

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When you think about precious metals, what elements come to mind? To be sure, gold, silver, and platinum come to the forefront. What about palladium? It is a precious metal, a platinum group metal, and a noble metal. Palladium was discovered by the British chemist William Hyde Wollaston in 1803. He named this precious metal, in 1804, after "Pallas" the ancient Greek goddess of wisdom whose name had also recently been given to the second asteroid ever discovered. Few people have heard of this precious metal in spite of its myriad uses, a couple of headline-grabbing stories, and what may be quite an interesting future as to helping us break free of our petroleum-energy dependence — perhaps even interesting enough to buy a few ounces for your portfolio.

Palladium is predominantly mined in Canada, Russia, South Africa, and the United States (Montana). To give you an idea of how rare this metal is, about 6.8 million ounces of palladium were mined in 2004. This compares to 79.2 million ounces of gold and 620 million ounces of silver mined in the same year. Platinum is slightly rarer with 6.4 million ounces produced in 2004.

Before delving further into palladium, I would be remiss not to mention a bullish contrarian indicator as to why precious metals are in the early stages of a bull market. As a surety bond underwriter, I analyze hundreds of personal financial statements every year. Bar none, real estate is where most people are "investing" their money. Equities (i.e. publicly traded stocks) come in a distant second place. Cash and bonds, of course, commonly occupy the asset side of a personal balance sheet as well. When it comes to precious metals, however, this asset class is completely off the radar screen. Maybe one in every two hundred personal financial statements will list precious metals (mostly gold and silver) as an asset. So when you hear the talking heads say "gold and silver have had a nice run but the party is over" don’t believe it. When the common man comes to realize that the Federal Reserve is debasing the dollar at breakneck speed, he is going to jump into precious metals with a vengeance. This is when the real fireworks will begin. We’re not even close to this point yet and that’s why I’m bullish on precious metals.

Palladium’s Uses

Much like silver, palladium is a precious metal whose demand is derived chiefly from industrial users. It is a versatile metal, which is ductile and is resistant to both oxidation and high temperature corrosion. Here is a list of notable applications:

  • Automobile Catalytic Converters: Palladium is used as a primary component in autocatalysts that reduce vehicle exhausts emissions of hydro-carbons, carbon monoxide, oxides of nitrogen, and particulate. Autocatalysts convert most of these emissions into less harmful carbon dioxide, nitrogen, and water vapor.

  • Dentistry: Palladium-based alloys are used in dentistry for dental crowns and bridges. This noble metal is compatible with human tissue.

  • Electronics: Palladium has a number of electronic applications. For example, palladium’s chemical stability and electrical conductivity make it an effective and durable alternative to gold for plating in electronic components.

  • Fine Instruments: Palladium is used in the manufacturing of fine instruments such as watches and some surgical instruments.

  • Jewelry: Palladium is lighter than platinum having about the same density as silver. In jewelry, it is principally used as an alloy with platinum to optimize platinum’s working characteristics and wear properties. However, due to platinum’s current high price, palladium is gaining popularity as a primary metal in jewelry — especially in China. It is also used as an alloy to make white gold.

  • Manufacturing and refining: Palladium is an important part of the refining of nitric acid, and plays a significant role in the production of synthetic rubber and nylon. It is a critical catalyst in the manufacture of polyester and serves important functions in catalytic reactions that are used in various stages of petroleum refining.

  • Photography: Palladium is used in an historic photographic printing process that is considered to be superior to conventional silver in tonal quality and archival longevity.

Headline-Grabbing News

On March 23, 1989, palladium became an integral part of headline news around the world. For on this date, at a news conference, Stanley Pons and Martin Fleischmann (both of the University of Utah) reported experimental results in which energy was generated via a "cold fusion" process. Thermonuclear reactions occur when temperatures are in the millions of degrees Celsius. To bring about nuclear fusion, using a simple table-top apparatus, was stunning news. Pons and Fleischmann’s apparatus essentially consisted of an electrolysis cell containing heavy water (dideuterium oxide) and a palladium cathode which rapidly absorbed the deuterium produced during electrolysis. What Pons and Fleischmann found was that the device’s energy output exceeded the energy input. In other words, they had discovered a process to bring about nuclear fusion at room temperature — or so they believed.

Palladium was the key component in this experiment. Fleischmann and Pons hypothesized that palladium may catalyze fusion due to this noble metal’s special ability to absorb large quantities of hydrogen (including its deuterium isotope). Similar experiments, conducted soon thereafter, produced disappointing results. Hence, a Department of Energy panel concluded: "Nuclear fusion at room temperature, of the type discussed in this report, would be contrary to all understanding gained of nuclear reactions in the last half century; it would require the invention of an entirely new nuclear process."

Alas, palladium had its day in the sun as a "miracle" metal that could safely bring us nuclear energy at a very low cost. For those who still believe, keep in mind that unexplained experimental results do not mean that Pons and Fleischmann’s experiment was wrong. Superconductivity, after all, was first observed in 1911 and explained theoretically decades later in 1957. There is mounting evidence that Pons and Fleischmann were on to something big.

In January of 2002, Ford Motor Company made business headlines by announcing a staggering net loss of $5.5 billion for fiscal-year 2001. What is so startling here pertains to the fact that $1 billion of this loss was related to Ford Motor Company’s panic-buying of palladium — which, as mentioned above, is used in automobile catalytic converters. Due to supply problems emanating from Russia, the price of palladium spiked to over $1,000 an ounce. Instead of switching back to using platinum as the catalyst metal, Ford stockpiled massive amounts of palladium at near-peak prices. As demand for palladium dropped and Russian supplies began coming back onto the market, the price of palladium plunged to about $400 an ounce. Ford Motor Company, consequently, had to mark down the value of its palladium inventory by the aforementioned $1 billion; thus writing another embarrassing chapter of American automotive history.

Hydrogen Fuel Cells and Palladium

A fuel cell operates very much like a battery given that it produces power in the form of electricity. Unlike a battery, it does not run down or need recharging because it produces energy as long as fuel is supplied to it. Hydrogen-rich fuels, that have been successfully utilized, include biodiesel, diesel, ethanol, kerosene, methane, methanol, natural gas, propane, and others. If fuel cell technology becomes commercially viable, then the internal combustion engine will be replaced by fuel cells and the global dependence on petroleum — as an energy source — will diminish markedly.

So how does a fuel cell work? Hydrogen fuel is fed into the anode of the fuel cell. Oxygen (or air) enters the fuel cell through the cathode. Encouraged by a catalyst, the hydrogen atom splits into a proton and an electron, which take different paths to the cathode. The proton passes through the electrolyte. The electrons create a separate current that can be utilized before they return to the cathode, to be reunited with the hydrogen and oxygen forming a molecule of water. Indeed, the main emission from the fuel cell is water vapor (which, by the way, is a greenhouse gas — this is something you won’t hear from environmentalists).

Fuel cells perform best when the hydrogen fuel is free of impurities. This is where palladium shines. Using a palladium membrane hydrogen purifier, pressurized hydrogen is diffused across the palladium membrane — keep in mind that only hydrogen possesses the ability to diffuse through palladium. As hydrogen passes through the palladium membrane, hydrogen loses its electron to the palladium structure and diffuses through the membrane as an ion (or proton). At the exit surface, the reverse process occurs. Therefore, the process can be described as follows: (1) adsorption, (2) dissociation, (3) ionization, (4) diffusion, (5) reassociation, (6) desorption. Once the hydrogen gas passes through the palladium membrane, an ultra-pure hydrogen gas may be fed into the fuel cell — thus preventing the anode catalyst, in the fuel cell, from being poisoned by trace impurities. There are fuel cell manufacturers using palladium for this exact purpose.

Another possible use for palladium, associated with hydrogen fuel cells, concerns hydrogen storage. At room temperature and atmospheric pressure, palladium can absorb up to 900 times of its own volume of hydrogen. One way to envision this is to imagine a sponge soaking up hundreds of buckets of water. From a safety standpoint, it may be more desirable to store hydrogen in a palladium bed (at room temperature and atmospheric pressure) than storing an equal volume of hydrogen in a highly pressurized tank.

Fuel cell power systems are already in use. They are being employed in hospitals, hotels, nursing homes, office buildings, schools, utility power plants, and an airport terminal — either providing primary or backup power. Likewise, they are being used as primary and backup power sources in homes. It is also quite exciting that DaimlerChrysler, Ford, General Motors, Honda, Nissan, and Toyota each have working fuel cell powered cars. Optimists claim that fuel cell powered cars might be commercially available by 2010.

Conclusion

As fuel cell technology progresses, the day may come where we are weaned off of our petroleum dependence. In turn, conceivably, a more peaceful world will emerge. And with palladium’s future intertwined with the fuel cell, maybe we can make a buck or two by purchasing a few ounces of this hard-working precious metal. At $273 an ounce, palladium may be a bargain today.

For your information, I do eat my own cooking. Here are pictures of one of my recent purchases.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

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