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The big rally in palladium prices still has room to run.

Double-digit returns are likely in store over the next few months. 

Increased interest in the metal from investors, as well as a relatively tight supply-demand balance, should propel prices even higher over the next half-year. Like gold, palladium is considered a precious metal, but it is overwhelmingly used for industrial purposes. Two-thirds of the production gets used in catalytic converters for automobiles, and another 13% is consumed by the electronics industry.

"We expect palladium prices to rise further over the next quarter or two, possibly reaching $1,800 or so before plateauing," says Jeff Christian, managing director of New York-based commodities consulting firm CPM Group.

Or put another way, within six months palladium, prices could rally 14% from the recent prices of $1,577 a troy ounce.

Investors wanting to profit from the likely move should consider buying the ETFS Physical Palladium Shares (PALL) - Get abrdn Physical Palladium Shares ETF Report  exchange-traded fund, which holds inventories of the metal. 

Since mid-August, palladium prices almost doubled from a low of $844 an ounce to a recent high of $1,600 on March 20, according to data from Bloomberg.

At least part of the story supporting prices comes from a recent announcement that Russia might ban exports of scrapped palladium. Scrapped metal is material that has previously been used, such as in a catalytic converter.

That potential export ban spooked the market in large part because Russia is set to produce 2.4 million ounces of the stuff this year, or 26% of the world's supply, according to estimates from CPM. Russia is second only to South Africa which will likely produce 2.6 million ounces this year or 27% of global mined output.

However, the real impact on the global market is not from Russia restricting exports of scrapped metal but rather in the Kremlin's message to the West. CPM's Christian explains: 

The [potential] Russian ban on palladium exports is more message than substance. There is very little palladium scrap exported from Russia. The message is designed to help stimulate investor and speculative buying, and to send the broader Russian message that Russia can be restrictive on its feeding materials to a hostile U.S. and Europe.

Put another way, the Kremlin is alerting the West that it can restrict supplies of the metal to the West if it wants to do so. And in doing so, the Russians are prompting investors to gobble up bars and coins made of palladium.

How high the price goes and how long it stays there depends in part on those investors.

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"At this point, investors do not seem interested in selling, [they are] waiting to see how high prices go," says Jeff Christian of commodities research group CPM.

Any increased investor demand would come in tandem with a market where demand already exceeds supply. This year, demand will total 276,000 ounces more than the supply of mined and recycled metal, according to projections from CPM.

Lately, the so-called deficit (where demand exceeds supply) has fallen but the question is for how long.

"The market is not as tight as it has been over the past couple of months," says Maxwell Gold, director of investment strategy at Aberdeen Standard Investments. He makes this claim because the cost of borrowing palladium, the so-called lease rate, has fallen dramatically over the last few weeks.

The lease rate for palladium was more than 30% in January versus around 4.5% recently, he says.

Lease rates are like interest rates on a loan. When money is scarce, it costs you more to borrow. Likewise, when palladium is scarce its lease rate is higher.

However, even the threat of an export ban on the metal from one of the world's top two producing countries could change the supply-demand dynamics and propel prices further upwards. That's a vital thing to watch in the thinly-traded palladium market.

Consumers of the metal could decide to hoard stockpiles in anticipation of a future supply shortage. That would temporarily increase the supply deficit.

And of course, investors themselves could buy up bars and coins of the metal, keeping the metal off the market.

Either or both of these moves together could move the market prices for the metal much higher.

And that doesn't even take into account the chance of problems with production at any of the mines around the world.

Together it's a recipe for wild price swings.

"In the short term you could see volatility pick up," says Gold.

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Constable owns none of the securities listed in this story.