With Friday’s announcement that it has developed an emission control catalyst that could cut in half the PGM loadings for gasoline-fueled cars, Nissan Motor Company has roiled the PGMs markets. Platinum dropped $43, while palladium dropped only $4. Investors should expect more fireworks as the market evaluates the impact of Nissan’s new catalytic converter.

At CMIGS, we have not been PGMs fans because while platinum and palladium are precious metals, they are industrial metals and have not been used as money. We believe the compelling reasons for own precious metals is to protect against currency debasement, and gold and silver have proven to be the ultimate hedges against inflation.

All things being equal, platinum and palladium would protect against currency debasement, but all things are not equal because of the huge demand for the PGMs that comes from the automobile industry, for use in catalytic converters specifically. Now, the Nissan announcement makes it extremely difficult to project future demand.

Mineweb.com has an article on Nissan’s announcement, with commentary on possible future impact on platinum and palladium demand.

CMIGS rarely recommends palladium and platinum because they are not monetary metals. Still, we they are precious metals, which is what CMIGS buys and sells.

The best source of information on palladium (and platinum) is Johnson Matthey, which boasts of being “the world’s leading authority on the production, supply and use of platinum and palladium.” JM has just released its annual review of the platinum and palladium markets, and the review is available in pdf format for interested investors.

Several aspects of the palladium market are worth mentioning.

First, the primary consumer of palladium is the autocatalyst industry, which annually makes up some 60% of annual consumption. A worldwide recession would hit auto sales hard and lessen demand. However, continued economic expansion should keep auto sales strong. Because CMIGS fears a recession, we urge caution in the palladium (and platinum) market.

The second aspect is the emerging palladium jewelry market in China, a relatively recent phenomenon. Basically, palladium for jewelry did not get started in China until 2004. Therefore, in 2004 and 2005, China’s jewelry industry was “filling the pipeline,” which required big quantities of palladium.

So, in 2006, when demand for palladium in China fell 50%, it was interpreted by many to be a major negative for palladium. In reality, the Chinese palladium market is still emerging and potentially stands to be a huge factor in the demand for palladium.

Again, we urge investors to visit the Johnson Matthey website and study the JM Platinum Review before buying palladium. The JM Platinum Review contains an analysis of the palladium market.

We also urge investors interested in palladium to read our comments on the palladium market. Popular palladium products are the RCM’s 1-oz Palladium Maple Leaf coins and the Credit Suisse and the PAMP 1-oz palladium bars.