skip to Main Content
Palladium Goes Sour

Palladium Goes Sour

February 24, 2017

Chapter 91 in the exclusive series for Dynamic Commodities- becoming a commodities trader

Chris Linen decided to make his bones at Philipp Brothers by taking on the palladium market. Palladium is the most commonly occurring platinum group metal. The primary use of palladium is for automobile catalytic converters. The metals density and high resistance to heat makes it an excellent catalyst. Palladium also has applications in electronics, jewelry, dentistry, coinage and investment demand. Twenty percent of the world’s annual production comes from South Africa. Around eighty percent comes from Russia. Palladium is a byproduct of nickel production. Norilsk Nickel in Siberia is one of the world’s biggest producers of the precious metal.

Chris had a plan. He was going to take a massive long position in palladium, buying futures, taking delivery and buying as much as the Russians had to sell. At first, the price rose, slightly. However, as he built the position, things changed. Linen’s timing was bad. Once the position grew to a substantial size, over 100,000 ounces, the price no longer held, it began to fall. Chris started buying at around $120 per ounce, the price rose and then turned lower. He continued to buy, amassing a position of 500,000 ounces. The price fell to a level that was below his lowest purchase price. Each dollar below the average purchase price meant a half million dollar loss. Every ten bucks cost $5 million. Things got ugly.

Chris wanted to make $100 million in palladium and use that to create a joint venture with the Russians. Marty was behind Chris. After all, he was the precious metals expert hired because he had the skills to understand where the price was going. When the position went bad, Marty got annoyed. Chris did not realize that the USSR was falling apart and the Russians were not only selling production but also, all of their reserves because they were starving for cash. Chris was under tremendous pressure.

I traveled to New York for meetings often and on one trip, while palladium was have a particularly tough session, I found myself in Marty’s office together with Chris. Marty was pressing my boss on the position. He asked what I thought and I offered support for Chris. Marty frowned and said, “What the f*ck are you guys, mother hens? Are you going to sit on that position and wait until it hatches?” Then he started making chicken noises, Chris started laughing and Marty began to shout at him. It was all very unpleasant, to say the least. Palladium then stabilized, unfortunately below the average purchase price. Chris remained positive and kept buying. That was a tragic mistake.

Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities

Post Series: Origin Of A Commodities Trader

Leave a Reply

Back To Top