With Russian stockpiles in the equation, it can be hard to know what's next for palladium. However, analysts see overall demand for palladium rising as the metal heads into its fourth year of structural deficit.
It's been a tough year for most metals, but palladium still managed to stand out as a bit of a bright spot. Some were calling for the metal to break $1,000 over the summer, and while prices disappointed by falling almost $200 in September, to $729 per ounce, palladium has slowly inched back up to about $808. Overall, palladium is up 15 percent this year, a stark contrast to its sister metal platinum, which is down about 10 percent. At the end of 2013, both metals were expected to see gains. Speaking to what could have driven palladium's positive performance, Sergey Raevskiy of SP Angel pointed out that holdings in palladium exchange-traded funds (ETFs) have grown by roughly 50 percent, or 1 million ounces, due to the launch of two new ETFs in South Africa; that's compared to a growth of just 100,000 ounces in platinum funds. "Palladium investment demand has seen a stark deviation from the dynamics in the platinum market regarding ounces involved," he said, noting that his company underestimated growth in investment demand due to the new South African funds. Raevskiy sees this year's sanctions against Russia due to tensions with Ukraine as another key factor that has lent support to prices. Russia produces about 40 percent of the world's palladium. Strong auto sales helped the palladium market this year as well — about 50 percent of the world's palladium is used in catalytic converters, mostly for gasoline engines. In November, auto sales figures hit record highs in both Canada and the US, and that trend is set to continue — global auto demand should continue to grow by 3 percent next year, according to a report from ScotiaMocatta. Gross demand for palladium from the auto industry is set to increase by about 4 percent.