Palladium sees volatile action, up 1% as Russia/U.S. tensions continue to rise

New York (Jan 27)  It is a sea of red in the precious metals market as investors react to Wednesday's hawkish Fed announcement; however, palladium is bucking the trend and pushing into positive territory after a volatile session.

Palladium prices are trading near a four-month high and commodity analysts say that the precious industrial metal is reacting to rising geopolitical tensions that could impact the market's supply and demand fundamentals.

March palladium futures last traded at $2,379.50 an ounce, up more than 1% on the day. At one point during the session, palladium was down more than 3.5%. Wednesday, the metal surged more than 8%, hitting its highest level since September.

Analysts note that investors are worried that rising tensions between the U.S. and Russia over Ukraine could limit the supply of palladium, which is an essential metal for the auto sector. Pal

"In our opinion, Russia could retaliate to possible sanctions imposed by western countries by restricting or indeed suspending palladium exports entirely," said Daniel Briesemann, precious metals analyst at Commerzbank.

Russia currently represents 38% of the global palladium supply, only slightly behind South Africa. Briesemann noted that if supply's were suspended, it would dramatically impact the auto sector.

"The automotive industry would then have to deal not only with the ongoing chip shortage but also with a palladium bottleneck that could limit production even further," he said.

Nicky Shiels, head of metals strategy at MKS PAMP SA said that while palladium prices have room to move higher, the move on geopolitical uncertainty could fade.

"The thinking is it should be a better sale on "de-escalation"than a buy on "escalation," she said. "It's nearer the top, given technicals, but one would want to also participate on moves if prices are another $100/200 higher."

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