Palladium prices hit a record high as tight supply spurs 18% rally in 2021

• Palladium soared to a record high of $2,918.50 Tuesday as the supply for the metal continues to lag worldwide.
• Prices indicated by palladium futures contracts expiring in June are up 18% for the year.
• Experts predict that the price of palladium will continue to rise to $3,000, nearly double the price of gold.

Palladium soared to a record high of $2,918.50 Tuesday as the supply for the white metal continues to lag worldwide thereby pushing prices higher.

Prices indicated by palladium futures contracts expiring in June are up 18% for the year.

For the past decade, the supply of palladium has been in a deficit. However, the renewed prospect of an even tighter supply situation has spooked investors, Germany-based Commerzbank said in a note.

Palladium, one of the four major precious metals, is a crucial component in pollution-control devices for vehicles. And as more countries in the world, led by China, impose tougher emission regulations for cars with combustion engines, demand has been robust for the platinum metal, Commerzbank said, especially from the automotive industry.

"It will probably then run out of steam, however, as automotive manufacturers will be increasingly keen at this price level to substitute palladium with the significantly cheaper platinum wherever technically possible," the bank said.

It also said: "Furthermore, the shortage of chips is currently causing bottlenecks in automotive production, which could temporarily slow demand for palladium."

The bank as well as New York-based foreign exchange company Oanda both predict that the price of palladium will continue to rise to $3,000 - making nearly double the price of gold.

Additional factors to palladium's price surge are the lack of investment in South Africa and supply outages in Russia, the bank explained, though these events have had more muted effects.

Russian palladium producer Nornickel in February partly suspended operations at two of its mines, reducing its 2021 output forecast by 15%-20%, according to Reuters. Nornickel is the world's largest palladium producer and a leading nickel producer.

Palladium - a byproduct during the mining of other metals such as platinum and nickel - is mined primarily in Russia and South Africa, according to the Washington Post. It is also commonly used in electronics, dentistry, and jewelry.