Benjamin Borden's "Best Canadian Stocks"

Gold is getting a lot of attention these days. You see it everywhere – ads on TV telling you to sell, columns in the paper telling you to buy, market gurus talking about the latest theories as to why it’s going up and Elliot wave theorists talking about why it’s about to crash, etc etc (aren’t Elliot wave theorists ALWAYS expecting a crash? )

Tune out the noise for a minute and take a step back. Stop trying to find causality. Stop thinking in terms of “reasons”. Try to be zen about it: gold is going up because it just is. You can see below that a silly chunk of metal has been outperforming the stock market by a wide margin long term.

Now don’t get me wrong. I like gold. But as an investor I am trying to maximize my opportunity given my resources for as little risk as I can get away with.

So where do I look to find some relatively risk-equivalent “leverage” on the gold story? One word: PALLADIUM.

Palladium is a famously unfamous metal, in the platinum group of metals. It has many industrial applications especially where you need a good catalyst. But it can also serve as a precious metal – in other words it can serve as a store of value long term since it has all the important attributes of a precious metal: it resists corrosion, takes energy to mine and refine, is eminently divisible, and is pretty to look at (in coin form at least).

Now since the Palladium market is much much smaller than the gold market and it has industrial use in addition to precious metal “demand”, it tends to undershoot gold during gold downswings and overshoot gold during gold upswings. In other words, the price of palladium is a partial derivative of the price of gold. You can see in the following chart that palladium has been outperforming gold since the crash bottom in March ‘09 and that the palladium to gold ratio is now poised to bounce higher off of its 200 day moving average.

Based on this action it is reasonable to assume that if gold is headed for another upswing, we should expect palladium to continue to overshoot (or outperform) gold.

Now how does one participate in the paper palladium market? Well you could buy into a palladium ETF (google this and you’ll find it). Effective. Rational. Sound. BORING!

Or you could buy into a palladium miner, of which there are precious few. One that I like is North American Palladium (PDL.TO). There are others out there but I like PDL because it is Canadian-based and I like to invest close to home. You can see in the graph below that the PDL to Palladium ratio is in a “stage one” consolidation possibly looking to break-out.

Therefore in buying PDL (and it is in my Portfolio) here is the “leverage” I am hoping for:

-Gold outperforms the stock market
-Palladium outperforms Gold
-PDL outperforms Palladium

When I get out my calculator I start to drool at the possibilities. Then the rational Benjamin sitting on my shoulder tells me, “…you are often wrong so keep a stop in place…idiot”. But a guy can still dream can’t he?

Palladium: the other “black gold”?

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