Palladium: The Metal That Became More Expensive Than Gold

Most people have never heard of palladium. Ask someone on the street to name a precious metal and they will say gold. Maybe silver. Maybe platinum if they know jewelry. Almost nobody would say palladium. But in January 2001, palladium became the first precious metal in history to break $1,000 per ounce. More expensive than gold. Chapter 19 of Torsten Dennin’s “From Tulips to Bitcoins” tells how this obscure metal went from $120 to over $1,100 in four years. A 10x increase. And it all came down to one country: Russia.

A Metal Nobody Thinks About

Palladium is not mined on its own. It is a by-product. When companies mine platinum or nickel, palladium comes out of the ground too. Nobody builds a mine specifically to get palladium. You cannot just produce more because the price went up. You would have to mine more platinum or nickel first.

Total annual production is about 220 metric tons. Compare that to gold at 3,000 metric tons per year, or silver at 24,000. The palladium market is tiny.

And here is the important part. Russia produces more than half of the world’s palladium. Most of it comes from the Norilsk nickel deposit in northern Siberia. One country, one region, one deposit. That is extreme concentration risk.

Russia also held government stockpiles. How much exactly? State secret. The Russian government did not disclose the size of its reserves. Analysts could only guess. The market was trading a metal where more than half the supply came from a single country, and nobody knew how much that country actually had in storage.

Why Palladium Suddenly Mattered

For decades, palladium was just a curiosity. Then the auto industry changed everything.

Catalytic converters in cars need platinum group metals to work. They clean exhaust gases before they leave the tailpipe. For a long time, most catalytic converters used platinum. But in the 1990s, automakers started switching to palladium instead. It was cheaper. It worked well in gasoline engines. Demand started climbing.

This created a new problem. The auto industry was now dependent on a metal that mostly came from one place. And in 1997, that place stopped delivering.

Russia Turns Off the Tap

In 1997, Russian palladium deliveries to the global market simply stopped. For seven months, no shipments left Russia. The official reasons were vague. Bureaucratic delays. Export license issues. The market did not care about the reasons. It cared that the metal was not arriving.

Prices started moving. From $120 per ounce in 1997, palladium climbed to $200 in 1998. Then something remarkable happened. In April 1998, palladium surpassed the price of gold for the first time since 1971. A metal most people cannot name became more expensive than the metal humans have treasured for thousands of years.

Then Russia halted deliveries again in 1998. The timing was terrible. Russia was in the middle of its own financial crisis. The ruble collapsed. The government defaulted on domestic debt. Analysts started asking an uncomfortable question: did Russia even have the palladium it claimed to have? Some suspected the stockpiles had been used as collateral for emergency loans during the crisis. The physical metal might have already been pledged to creditors. Nobody could confirm anything. State secret. But the uncertainty alone was enough to keep prices climbing.

The Rocket Ride to $1,100

After the second supply disruption, the price moves became extreme. $400. Then $600. Then $800 by February 2000. Automakers were scrambling to secure supply at any price because their production lines could not run without catalytic converters, and catalytic converters could not work without palladium.

In January 2001, palladium broke through $1,000 per ounce. First precious metal ever to reach that level. By the end of January, it hit $1,100. From $120 to $1,100 in roughly four years. That is the kind of price move that makes hedge fund managers lose sleep, whether they are long or short.

The Crash

Then Russia decided to sign long-term supply contracts with Japanese automakers. The immediate supply fear evaporated. Once buyers believed they could get the metal reliably, the panic premium disappeared.

Palladium crashed back to $200. Almost as fast as it went up.

Later, during the commodity boom of the mid-2000s, it recovered to about $600. But the real second act came from an unexpected direction. In 2015, Volkswagen’s Dieselgate scandal hit. VW had been cheating on diesel emissions tests. Regulators cracked down on diesel cars across Europe. Consumers shifted to gasoline cars. And gasoline catalytic converters use palladium, not platinum.

Demand surged again. The price doubled from $500 to over $1,100 by the end of 2018. At the start of 2019, palladium was trading at $1,320. Once again more expensive than gold.

What Stays With Me

Dennin uses this chapter to show a pattern that appears throughout the book. Extreme price moves happen when you combine a tiny market with concentrated supply and sudden demand. Palladium checks all three boxes. Small production. One dominant supplier with secret reserves. And an auto industry that suddenly could not live without it.

The Russian supply disruptions were not some sophisticated market manipulation. They may have been genuine bureaucratic chaos during a financial crisis. But the effect was the same. When you control more than half the supply of something and you stop shipping it, prices will move. They have to.

The other lesson is about substitution. Automakers switched from platinum to palladium because it was cheaper. Then palladium became more expensive than gold. The cheaper alternative became the expensive one. When an entire industry shifts its demand to a smaller market, that market cannot absorb it quietly.

Ten times in four years. A metal nobody talks about at dinner parties. That is palladium.

Previous: Chapter 18: Bre-X Gold Fraud

Next: Chapter 20: Copper Liu Qibing

This is part of my From Tulips to Bitcoins book retelling series.