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by Eric Englund
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.
-
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.
January
24, 2006
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